UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

|(Mark one)                                                       |                                                                                         
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2007                     
|or                                                              
|o                                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                                to

Commission file number 001-00091

Furniture Brands International, Inc.(Exact Name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)             |  | 43-0337683(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------------------- |  | ----------------------------------------------
|101 South Hanley Road, St. Louis, Missouri(Address of principal executive offices) |  | 63105(Zip Code)                               

Registrant's
telephone number, including area code(314) 863-1100

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

|Title of each class                                                  |  | Name of each exchange on which registered
|-------------------------------------------------------------------- |  | -----------------------------------------
|Common Stock$1.00 Stated Value
with Preferred Stock Purchase Rights |  | New York Stock Exchange                  

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None
(Title of Class)

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. ý Yes    o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. o    Yes    ý No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. ý Yes    o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ý

Accelerated Filer o

Non-Accelerated Filer o (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act.). o Yes    ý No

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2007, the last business day of the
registrant's most recently completed second fiscal quarter, was approximately $682,535,000.

Indicate
the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

48,498,171
shares as of January 31, 2008

DOCUMENTS INCORPORATED BY REFERENCE

|Portions of Definitive Proxy Statement for Annual Meeting of Stockholders to be held on May 1, 2008 |  | Part III
|--------------------------------------------------------------------------------------------------- |  | --------



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PART I

Item 1.    Business

BRANDS AND PRODUCTS

Furniture Brands is a vertically integrated operating company that is one of the nation's leading designers, manufacturers, sourcers, and retailers of home
furnishings. We market through a wide range of retail channels, from mass merchant stores to single-branded and independent dealers to specialized interior designers. We serve customers through some
of the best known and most respected brands in the furniture industry, including Broyhill, Lane, Thomasville, Drexel Heritage, Henredon, Pearson, Hickory Chair, Laneventure, and Maitland-Smith (the
"Brands").

Through
these Brands, we design, manufacture, source, market and distribute (i) case goods, consisting of bedroom, dining room and living room furniture, (ii) stationary
upholstery products, consisting of sofas, loveseats, sectionals and chairs, (iii) occasional furniture, consisting of wood, metal and glass tables, accent pieces, home entertainment centers and
home office furniture, (iv) recliners, motion furniture and sleep sofas, and (v) decorative accessories and accent pieces. Our Brands are featured in nearly every price and product
category in the residential furniture industry.

Each
Brand designs, manufactures, sources and markets home furnishings, targeting a specific segment of the market in terms of style and price point.



On
October 16, 2007, we announced our intent to divest Hickory Business Furniture (HBF), a wholly-owned subsidiary that designs and manufactures business furniture in the
mid- to upper-price range. We believe this transaction will be completed by the end of the first quarter of 2008; therefore, this business unit is reflected as a discontinued operation.

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DISTRIBUTION

Our breadth of product and national scope of distribution enable us to service retailers ranging in size from small, independently-owned furniture stores to
national and regional department stores and chains. The residential furniture retail industry has consolidated in recent years, displacing many small local and regional furniture retailers with larger
chains and specialty stores. This consolidation has made access to distribution channels more difficult, and we believe our relative size and the strength of our brand names offers us an important
competitive advantage.

We
have a three-tiered approach to our distribution efforts. Our primary avenue of distribution continues to be through a diverse network of independently owned, full-line
furniture retailers. Although a number of these retailers have been displaced in recent years, this network remains an important part of our distribution base.

At
the same time, as the second element of our distribution strategy, we have developed dedicated distribution channels by expanding our gallery programs. In this approach, retailers
employ a consistent concept where products are displayed in complete and fully accessorized room settings instead of as individual pieces. This presentation format encourages consumers to purchase an
entire room of furniture instead of individual pieces from different manufacturers. Each of our Brands offer services to retailers to support their marketing efforts, including coordinated national
advertising, merchandising and display programs and dealer training.

Lastly,
we have further developed our dedicated distribution channel of single-brand retail stores, such as Thomasville Home Furnishings Stores and Drexel Heritage Home Inspiration
Stores, and, to a lesser extent, Henredon Stores. These stores are primarily dealer-owned retail locations that exclusively
feature a single brand. We believe distributing our products through dedicated, single-brand stores strengthens brand awareness, provides well-informed and focused sales personnel and
encourages the purchase of multiple items per visit. While most of these stores are independently-owned, as of the end of 2007 we owned and operated 28 of these single-brand stores and 6
designer showrooms. We believe this ownership brings us closer to the consumer, gives us greater line of sight into developing tastes and trends in the marketplace, and helps us better understand the
challenges facing the independent retailers with whom we do the majority of our business.

Our
strategy of targeting these diverse distribution channels is supported by dedicated sales forces covering each of these distribution channels. We also continue to explore
opportunities to expand international sales and to distribute through non-traditional channels such as wholesale clubs, catalog retailers, and the Internet.

Trade
showrooms are located in Thomasville and High Point, North Carolina; Chicago, Illinois; Las Vegas, Nevada; and Tupelo, Mississippi.

MANUFACTURING AND SOURCING

There has been a significant change in recent years in the manner by which we bring products to market. Where we have traditionally been a domestic furniture
manufacturer, we have shifted to a blended strategy, mixing domestic production with products sourced from offshore.

We
operate 21 case goods, upholstery and component manufacturing facilities, located in North Carolina, Mississippi, Virginia, the Philippines and Indonesia totaling approximately
8.0 million square feet. (See Item 2Properties for a listing of our principal facilities.)

An
increasing percentage of our products are being sourced from manufacturers located offshore, primarily in China, the Philippines, Indonesia, and Vietnam. We design and engineer these
products, and then have them manufactured to our specifications by independent offshore manufacturers. We have informal strategic relationships with several of the larger foreign manufacturers whereby
we have

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the
ability to purchase, on a coordinated basis, a significant portion of the foreign manufacturers' capacity, subject to quality control and delivery standards. Two of these manufacturers represented
20% and 17% of imported product during 2007 and four other manufacturers represented in excess of 5% each.

We
have an agreement with an independently-owned company that provides sourcing assistance, product quality control and other import-related services for us in Asia. This agreement has
been terminated, effective June 30, 2008, at which time these functions will be assumed internally.

RAW MATERIALS AND SUPPLIERS

The raw materials used in manufacturing our products include lumber, veneers, plywood, fiberboard, particleboard, steel, paper, hardware, adhesives, finishing
materials, glass, mirrored glass, fabrics, leathers, metals, stone, synthetics and upholstered filling material (such as synthetic fibers, foam padding and polyurethane cushioning). The various types
of wood used in our products include cherry, oak, maple, pine, pecan, mahogany, alder, ash, poplar, and teak which are purchased both domestically and abroad. We purchase fabrics, leathers and other
raw materials both domestically and abroad. We believe our supply sources for these materials are adequate.

We
have no long-term supply contracts and we have experienced no significant problems in supplying our operations. Although we have strategically selected our suppliers of
raw materials, we believe there are a number of other sources available, contributing to our ability to obtain competitive pricing. Prices fluctuate over time depending upon factors such as supply,
demand and weather. Increases in prices may have a short-term impact on our profit margins.

We
purchase the majority of raw materials for promotional and RTA products domestically, although we purchase paper and certain hardware abroad. We believe our proximity to and
relationship with suppliers is advantageous for the sourcing of such materials. In addition, by consolidating our purchasing of various raw materials (such as foam, cartons, springs and fabric) and
services, we have been able to realize cost savings.

MARKETING AND ADVERTISING

We use advertising to increase consumer awareness of our brand names and motivate purchases of our products. Our advertising is targeted to specific consumer
segments through national and regional television as well as leading shelter and other popular magazines such as Better Homes and Gardens, House Beautiful and Architectural Digest. Each of our Brands
uses focused advertising in major markets to create buying urgency around specific sale events and to provide dealer location information, enabling retailers to be listed jointly in advertisements for
maximum advertising efficiency and shared costs. Each of our Brands seeks to increase consumer buying and strengthen relationships with retailers through cooperative advertising and selective
promotional programs, and focuses its marketing efforts on prime potential customers utilizing information from databases and from callers to each Brand's toll-free telephone number. Each
of our Brands maintains consumer websites to promote their products and drive consumers to retail stores.

USES OF CASH

Our preferred use of free cash is reinvestment in the business. In recent years, as free cash has exceeded the needs of funding the business, we have made
dividend payments, repaid debt and repurchased our Common Stock. Going forward we expect to continue to pay dividends and will consider debt repayments and the repurchase of our Common Stock as
authorized and as free cash is available. Our revolving credit facility contains restrictions on dividend payments and common stock repurchases if the excess availability falls below certain
thresholds.

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MANAGEMENT AND EMPLOYEES

As of December 31, 2007, we employed approximately 11,900 full-time employees. None of our employees is represented by a union.

During
the past three years, we made a number of changes to our senior management team, attracting talent from outside the furniture industry to further strengthen our organization, to
introduce new ideas, new cultures and new attitudes, and to help us both reflect and understand our consumer base. We are also establishing a more comprehensive management development program within
the Company to help develop our future leaders.

Through
regular interaction, sharing of best practices, and cooperative efforts to reduce costs and drive value, our senior leadership team across all of our Brands operates as a single
unit. Our goal is to gain the full leverage of our size, while at the same time retaining the entrepreneurial spirit vital to the success of our Brands.

ENVIRONMENTAL MATTERS

We are subject to a wide range of federal, state and local laws and regulations relating to protection of the environment, worker health and safety and the
emission, discharge, storage, treatment and disposal
of hazardous materials. These laws include the Clean Air Act of 1970, as amended, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act and the Comprehensive
Environmental, Response, Compensation and Liability Act ("Superfund"). Certain of our operations use glues and coating materials that contain chemicals that are considered hazardous under various
environmental laws. Accordingly, we closely monitor environmental performance at all of our facilities. We believe we are in substantial compliance with all environmental laws. In our opinion, our
ultimate liability, if any, under all such laws is not reasonably likely to have a material adverse effect upon our consolidated financial position or results of operations other than potential
exposures with respect to which monitoring or cleanup requirements may change over time.

COMPETITION

The residential furniture industry is highly competitive. Our products compete against domestic manufacturers, importers and foreign manufacturers entering the
United States market; as well as increased direct importing by some larger retailers. Our competitors include: Ashley Furniture Industries, Inc.; La-Z-Boy Incorporated;
Ethan Allen Interiors Inc. and many other home furnishings retailers and manufacturers. The elements of competition include price, style, quality, service and marketing.

BACKLOG

The combined backlog of our operating companies as of December 31, 2007 was approximately $236 million compared to approximately $248 million
as of December 31, 2006. Backlog consists of orders believed to be firm for which a customer purchase order has been received. Since orders may be rescheduled or canceled, backlog does not
necessarily reflect future sales levels.

TRADEMARKS AND TRADE NAMES

We utilize trademarks and trade names extensively to promote brand loyalty among consumers. We view such trademarks and trade names as valuable assets and we
aggressively protect our trademarks and trade names by taking appropriate legal action against anyone who infringes upon or misuses them.

Our
principle trademarks and trade names are: Broyhill, Lane, Laneventure, Thomasville, Henredon, Drexel Heritage, Maitland-Smith, Hickory Chair, Pearson, HBF, Vignettes, and Creative
Interiors.

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WORKING CAPITAL

For information regarding working capital items, see the description of "Financial Condition and LiquidityLiquidity" in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, on Page 14.

INTERNET ACCESS

Forms 10-K, 10-Q, 8-K and all amendments to those reports are available without charge through our website as soon as
reasonably practicable after being electronically filed with, or furnished to, the Securities and Exchange Commission. Our website can be accessed at www.furniturebrands.com.Information on our website
does not constitute part of this Annual Report on Form 10-K.

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Item 1A.    Risk Factors

Our operating results are subject to quarterly and annual fluctuations as a result of a number of factors. Such factors are set forth below. We may amend or
supplement these risk factors from time to time in other reports we file with the Securities and Exchange Commission in the future.

An economic downturn could result in a decrease in our sales and earnings.

The residential furniture industry is subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects. Economic
downturns could affect consumer spending habits by decreasing the overall demand for home furnishings. Such events would also impact retailers, our primary customers, resulting in a decrease in our
sales and earnings.

Loss of market share due to competition would result in a decrease in our future sales and earnings.

The residential furniture industry is highly competitive and fragmented. We compete with many other manufacturers and retailers some of which offer
widely-advertised, well-known, branded products, and large retail furniture dealers who offer their own store-branded products. The highly competitive nature of the industry means we are
constantly subject to the risk of losing market share. As a result, we may not be able to maintain or to raise the prices of our products in response to such inflationary pressures as increasing
costs. Also due to the large number of competitors and their wide range of product offerings, we may not be able to differentiate our products (through styling, finish and other construction
techniques) from those of our competitors. Large retail furniture dealers have the ability to obtain offshore sourcing on their own.

Failure to forecast demand or respond to changes in consumer tastes and fashion trends in a timely manner could result in a decrease in our future sales and earnings.

Residential furniture is a highly styled product subject to fashion trends and geographic consumer tastes. Consumer tastes and fashion trends can change rapidly.
If we are unable to anticipate or respond to changes in consumer tastes and fashion trends in a timely manner or to otherwise forecast demand accurately, we may lose sales and face excess inventory
(both raw materials and finished goods). Disposal of excess inventory may result in a decrease in sales and earnings.

Failure to achieve our projected mix of product sales could result in a decrease in our future sales and earnings.

Some of our products are sold for a higher profit than other of our products. An increase in the sales of our lower profit products at the expense of the sales of
our higher profit products could result in a decrease in our earnings.

Business failures of large dealers and customers could result in a decrease in our future sales and earnings.

Although we have no customers who individually represent 10% or more of our total annual sales, the possibility of business failures of large customers could
result in a decrease in our future sales and earnings. Also, we are either lessee on or guarantor of many leases of Company-brand stores operated by independent furniture dealers. Defaults by any of
these dealers would result in our becoming responsible for payments under these leases and could reduce our future earnings.

Distribution realignments and cost savings programs can result in a decrease in our near-term sales and earnings.

At
times it is necessary that we discontinue certain relationships with customers (retailers) who do not meet our growth and profitability standards. Until realignment is established,
there can be a

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decrease
in near-term sales and earnings. We continually review relationships with our customers (retailers) and future realignments are possible based upon such ongoing reviews.

Manufacturing realignments could result in a decrease in our near-term earnings.

We continually review our domestic manufacturing operations and offshore (import) sourcing capabilities. Effects of periodic manufacturing realignments and cost
savings programs could result in a decrease in our near-term earnings until the expected cost reductions are achieved. Such programs can include the consolidation and integration of
facilities, functions, systems and procedures. Certain products may also be shifted from domestic manufacturing to offshore sourcing. Such actions may not be accomplished as quickly as anticipated and
the expected cost reductions may not be achieved in full.

Increased reliance on offshore sourcing of our products subject us to changes in local government regulations and currency fluctuations which could result in a decrease in our
earnings.

During recent years, we have been increasing our offshore capabilities to provide flexibility in product programs and pricing to meet competitive pressures. The
mix of product lines has been moving from domestically manufactured to offshore sourced. Risks include changes in local government regulations and policies, including those related to tariffs and
trade barriers, investments, taxation, exchange controls and repatriation of earnings. Changes in the relative values of currencies could increase our costs and decrease our earnings.

Our operations depend increasingly on production facilities located outside the United States which are subject to increased risks of disrupted production which could cause
delays in shipments, loss of customers and decreases in sales and earnings.

We have placed more production in emerging markets to capitalize on market opportunities and to minimize our costs. Our international production operations could
be disrupted by a natural disaster, labor strike, war, political unrest, terrorist activity or public health concerns, particularly in emerging countries that are not well-equipped to
handle such occurrences. Our production abroad may also be more susceptible to changes in laws and policies in host countries and economic and political upheaval than our domestic production. Any such
disruption could cause delays in shipments of products, the loss of customers and decreases in sales and earnings.

Fluctuations in the price, availability and quality of raw materials could cause delay which could result in a decrease in our sales and increase costs which would result in a
decrease in our earnings.

Fluctuations in the price, availability and quality of the raw materials we use in manufacturing residential furniture could have a negative effect on our cost of
sales and ability to meet the demands of our customers (retailers). Inability to meet the demands of our customers could result in the loss of future sales. We use various types of wood, fabrics,
leathers, glass, upholstered filling material, steel, and other raw materials in manufacturing furniture. The costs to manufacture furniture depend in part on the market prices of the raw materials
used to produce the furniture. We may not be able to pass along to our customers all or a portion of the costs of higher raw materials due to competitive and marketing pressures.

We are subject to litigation and environmental regulations that could adversely impact our sales and earnings.

We are, and may in the future be, a party to legal proceedings and claims, including those involving product liability and environmental matters, some of which
claim significant damages. We face the business risk of exposure to product liability claims in the event that the use of any of our products results in personal injury or property damage. In the
event any of our products prove to be defective,

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we
may be required to recall or redesign such products. We maintain insurance against product liability claims, but there can be no assurance such coverage will continue to be available on terms
acceptable to us or such coverage will be adequate for liabilities actually incurred. We also are, and may in the future be, a party to legal proceedings and claims arising out of certain dealer
terminations as we continue to re-examine and realign our retail distribution strategy. Given the inherent uncertainty of litigation, we can offer no assurance future litigation will not
have a material adverse impact. We are also subject to various laws and regulations relating to environmental protection and the discharge of materials into the environment and we could incur
substantial costs as a result of the noncompliance with or liability for cleanup or other costs or damages under environmental laws.

Future acquisitions and investments could result in dilution to our earnings per share and a decrease in the valuation of our Common Stock.

As part of our business strategy, we may make acquisitions and investments in businesses that offer complementary products. Risks commonly encountered in
acquisitions include the possibility that we pay more than the acquired company or assets are worth, the difficulty of assimilating the operations and personnel of the acquired business, the potential
disruption of our ongoing business and the
distraction of our management from ongoing business. Consideration paid for future acquisitions could be in the form of cash or stock or a combination thereof. Dilution to existing stockholders and to
earnings per share may result in connection with any such future acquisition.

Impairment of long-lived assets, goodwill and intangibles would result in a decrease in our earnings.

Accounting rules require that long-lived assets, goodwill and intangible assets be evaluated for impairment at least annually. We have substantial
long-lived assets, goodwill and trademarks, which based upon the outcome of such evaluations has resulted and could in the future result in the write-down of all or a portion
of these assets and a corresponding reduction in our earnings and net worth.

Certain anti-takeover provisions and preferred stock issuances could result in a decrease in a potential acquirer's valuation of our Common Stock.

Certain provisions of our Certificate of Incorporation could make it more difficult for a third party to acquire control of us, even if such change in control
would be beneficial to our stockholders. Also, our Certificate of Incorporation allows us to issue preferred stock without stockholder approval. Such issuances could also make it more difficult for a
third party to acquire us. In addition, we have a shareholders' rights plan which could make it more difficult for a third party to acquire us.

Our growth strategy includes the development of new stores each year. If we and our dealers are not able to open new stores or effectively manage the growth of these stores,
our ability to grow and our profitability could be adversely affected.

Our growth in part depends on our ability and the ability of our dealers to open and operate new stores successfully. We have in the past and will likely continue
to purchase or otherwise assume operation of Company-brand stores from independent dealers. Our ability and the ability of our dealers to identify and open new stores in desirable locations and
operate such stores profitably is a factor in our ability to grow successfully. Increased demands on our operational, managerial and administrative resources could cause us to operate our business
less effectively, which in turn could cause deterioration in our profitability.

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Loss of funding sources would adversely impact our business.

Access to funding through the financial markets is important to our business operations and if we are unable to maintain such access we could experience an
adverse effect on our business and financial results. Failure to maintain satisfactory financial performance could adversely affect our access to the financial markets or increase our financing costs.
See discussion of financial covenants included in Financing Arrangements section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations on
page 16.

Reduced trade credit terms could impact our cash flow.

Part of our short term funding is from vendors who extend us payment terms. If industry fundamentals or practices cause a shortening or elimination of these terms
the upfront need for cash would reduce our cash position.

Item 1B.    Unresolved Staff Comments

None.

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Item 2.    Properties

We own or lease the following principal plants, offices and distribution centers:

|Location            |  | Type of Facility                                      |  | Floor Space
(Sq. ft.) |  | Owned
or Leased
|------------------- |  | ----------------------------------------------------- |  | --------------------- |  | ---------------
|St. Louis, MO       |  | Headquarters                                          |  | 32,978                |  | Leased         
|Lenoir, NC          |  | Offices                                               |  | 136,000               |  | Owned          
|Lenoir, NC          |  | Upholstery plant/distribution center                  |  | 262,878               |  | Owned          
|Taylorsville, NC    |  | Upholstery plant/distribution center                  |  | 212,754               |  | Owned          
|Rutherfordton, NC   |  | Distribution center                                   |  | 1,009,253             |  | Owned          
|Lenoir, NC          |  | Distribution center                                   |  | 502,420               |  | Leased         
|Lenoir, NC          |  | Distribution center                                   |  | 205,964               |  | Leased         
|Rialto, CA          |  | Distribution center                                   |  | 703,176               |  | Leased         
|Tupelo, MS          |  | Offices/upholstery plant/distribution center          |  | 715,951               |  | Owned          
|Saltillo, MS        |  | Upholstery plant/distribution center                  |  | 830,200               |  | Owned          
|Verona, MS          |  | Upholstery plant/distribution center                  |  | 423,392               |  | Owned          
|Pontotoc, MS        |  | Upholstery plant/distribution center                  |  | 358,652               |  | Owned          
|Wren, MS            |  | Distribution center                                   |  | 494,813               |  | Leased         
|High Point, NC      |  | Component plant                                       |  | 187,162               |  | Owned          
|Conover, NC         |  | Upholstery plant                                      |  | 351,015               |  | Owned          
|Conover, NC         |  | Upholstery plant/distribution center                  |  | 347,500               |  | Owned          
|Thomasville, NC     |  | Offices/showroom                                      |  | 256,000               |  | Owned          
|Thomasville, NC     |  | Case goods plant                                      |  | 325,000               |  | Owned          
|Lenoir, NC          |  | Case goods plant/distribution center                  |  | 828,000               |  | Owned          
|Conover, NC         |  | Upholstery plant                                      |  | 123,200               |  | Owned          
|Hickory, NC         |  | Upholstery plant/distribution center                  |  | 209,800               |  | Leased         
|Thomasville, NC     |  | Distribution center                                   |  | 731,000               |  | Owned          
|Appomattox, VA      |  | Case goods plant/distribution center                  |  | 829,800               |  | Owned          
|High Point, NC      |  | Offices/showroom                                      |  | 100,000               |  | Owned          
|High Point, NC      |  | Upholstery plant                                      |  | 280,650               |  | Owned          
|Morganton, NC       |  | Distribution center                                   |  | 513,800               |  | Owned          
|Longview, NC        |  | Upholstery plant                                      |  | 260,060               |  | Leased         
|Mt. Airy, NC        |  | Upholstery plant                                      |  | 102,500               |  | Owned          
|Hickory, NC         |  | Case goods plant/upholstery plant/distribution center |  | 519,011               |  | Owned          
|High Point, NC      |  | Upholstery plant/distribution center                  |  | 178,500               |  | Owned          
|Marion, NC          |  | Distribution center                                   |  | 400,000               |  | Leased         
|High Point, NC      |  | Offices/distribution center                           |  | 220,000               |  | Leased         
|Cebu, Philippines   |  | Case goods plant                                      |  | 480,338               |  | Owned          
|Semarang, Indonesia |  | Plant/distribution center                             |  | 176,413               |  | Leased         

The
Tupelo, Mississippi facility is encumbered by a mortgage and first lien securing revenue bonds.

We
believe our properties are generally well-maintained, suitable for our present operations and adequate for current production requirements. Productive capacity and extent
of utilization of our facilities are difficult to quantify with certainty because in any one facility maximum capacity and utilization varies periodically depending upon the product being
manufactured, the degree of automation and the utilization of the labor force in the facility. In this context, we estimate the overall production capacity, in conjunction with our import
capabilities, is sufficient to meet anticipated demand.

In
2001 we began implementing a plan to reduce our domestic manufacturing capacity. As of December 31, 2007, this plan included the closing, consolidation or reconfiguration of 38
domestic

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manufacturing
facilities. Restructuring activity included the closing of five domestic manufacturing facilities in 2007, the closing or the realignment of three domestic manufacturing facilities in
2006, the closing of eight manufacturing facilities in 2005.

Item 3.    Legal Proceedings

We are or may become a defendant in a number of pending or threatened legal proceedings in the ordinary course of business. In our opinion, our ultimate
liability, if any, from all such proceedings is not reasonably likely to have a material adverse effect upon our consolidated financial position or results of operations or those of our subsidiaries.

We
are also subject to regulation regarding environmental matters, and are a party to certain actions related thereto. For information regarding environmental matters, see
"Item 1. BusinessEnvironmental Matters."

Item 4.    Submission of Matters to a Vote of Security Holders

Not applicable.

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PART II

Item 5.    Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Shares
of our Common Stock are traded on the New York Stock Exchange. The reported high and low sale prices for our Common Stock on the New York Stock Exchange are included in
Note 18 to the consolidated financial statements of the Company.

Holders

As
of January 31, 2008, there were approximately 1,400 holders of record of Common Stock.

Dividends

We
paid dividends at the rate of $0.16 per share per quarter during 2006 and 2007. On January 30, 2008 we declared a quarterly dividend of $0.04 per share to be paid on
February 29, 2008.

Our
revolving credit facility contains restrictions on dividend payments if the excess availability falls below certain thresholds. Additional information concerning dividends may be
found in the following sections of this Form 10-K, which are incorporated into this Item 5. by reference: "Consolidated Statement of Cash Flows," "Consolidated Statement of
Shareholders' Equity and Comprehensive Income," and Note 19, "Quarterly Financial Information (Unaudited)" in Item 8. Financial Statements and Supplementary Data.

Equity Compensation Plan Information

The
following table sets forth aggregate information regarding the Company's equity compensation plans as of December 31, 2007:

|Plan Category                                              |  | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights |  | Weighted-average
exercise price of
outstanding options,
warrants and rights |       | Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a))
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | -------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders(1)  |  | 3,460,484                                                                                   |  | $                                                                           | 23.25 |                                                                                                                                            
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                                             |      |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                                             |       |                                                                                                                                            
|Total                                                      |  | 3,460,484                                                                                   |  | $                                                                           | 23.25 |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                                             |       |                                                                                                                                            

---

Annually,
the Board of Directors determines the amount of fees to be paid to non-employee Directors, including an award of restricted shares of Company Common Stock, as
described under "Compensation of Board of Directors" in the 2008 Proxy Statement, hereby incorporated by reference. These shares are purchased in open-market transactions.

13

---



Annually,
Lane Furniture Industries, Inc., a subsidiary of the Company, awards a limited number of shares of Company Common Stock to a few of its truck drivers as safety awards.
1,222 shares of the Company's Common Stock were issued as safety awards in 2007. These shares are purchased in open-market transactions.

Information
regarding the 1992 Stock Option Plan and 1999 Long-Term Incentive Plan set forth in Note 8 of Notes to Consolidated Financial Statements is hereby
incorporated by reference.

On
January 26, 2006 the Board of Directors authorized the repurchase of $50 million of Common Stock over the next 12 month period. On January 26, 2007 this
authorization expired with no shares having been purchased.

14

---





Item 6.    Selected Financial Data

FIVE-YEAR CONSOLIDATED FINANCIAL REVIEW

|                                                      |                                                                      | Year Ended December 31,    
|----------------------------------------------------- | -------------------------------------------------------------------- | ---------------------------
|
|
|Summary of operations(1):                             |                                                                      |                            
|                                                      | Net sales                                                            |                            
|                                                      | Gross profit                                                         |                            
|                                                      | Interest expense                                                     |                            
|                                                      | Earnings (loss) from continuing operations before income tax expense |                            
|                                                      | Income tax expense (benefit)                                         |                            
|                                                      | Net earnings (loss) from continuing operations                       |                            
|                                                      | Net earnings from discontinued operations                            |                            
|                                                      | Net earnings (loss)                                                  |                            
|                                                      | Per share of common stock:                                           |                            
|                                                      |                                                                      | Net earning (loss)diluted:
|                                                      |                                                                      |                            
|                                                      |                                                                      |                            
|                                                      |                                                                      |                            
|                                                      |                                                                      | Dividends                  
|Weighted average common sharesdiluted (in thousands) |                                                                      |                            
|Other information(1):                                 |                                                                      |                            
|                                                      | Working capital                                                      |                            
|                                                      | Property, plant and equipment, net                                   |                            
|                                                      | Capital expenditures                                                 |                            
|                                                      | Total assets                                                         |                            
|                                                      | Long-term debt                                                       |                            
|                                                      | Shareholders' equity                                                 |                            
|                                                      |                                                                      |                            

---

15

---





Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

Furniture
Brands is a vertically integrated operating company that is one of the nation's leading designers, manufacturers, sourcers, and retailers of home furnishings. We market through
a wide range of retail channels, from mass merchant stores to single-branded and independent dealers to specialized interior designers. We serve customers through some of the best known and most
respected brands in the furniture industry, including Broyhill, Lane, Thomasville, Drexel Heritage, Henredon, Pearson, Hickory Chair, Laneventure, and Maitland-Smith (the "Brands").

Through
these Brands, we design, manufacture, source, market and distribute (i) case goods, consisting of bedroom, dining room and living room furniture, (ii) stationary
upholstery products, consisting of sofas, loveseats, sectionals and chairs, (iii) occasional furniture, consisting of wood, metal and glass tables, accent pieces, home entertainment centers and
home office furniture, (iv) recliners, motion furniture and sleep sofas, and (v) decorative accessories and accent pieces. These Brand names cover nearly every price and product category
in the residential furniture industry.

Our
breadth of product and national scope of distribution enable us to service retailers ranging in size from small, independently-owned furniture stores to national and regional
department stores and chains. The residential furniture retail industry has consolidated in recent years, displacing many small
local and regional furniture retailers with larger chains and specialty stores. This consolidation has made access to distribution channels more difficult, and we believe our relative size and the
strength of our Brand names offer us an important competitive advantage.

We
have a three-tiered approach to our distribution efforts. Our primary avenue of distribution continues to be through a diverse network of independently owned, full-line
furniture retailers. The second element of our retail approach is dedicated distribution channels in the form of gallery programs. In this approach retailers employ a concept where products are
displayed in complete and fully accessorized room settings. This presentation format encourages consumers to purchase an entire room of furniture instead of individual pieces from different
manufacturers. Lastly, we have further developed our dedicated distribution channels with an expanding network of single-brand retail stores. These stores are primarily dealer-owned retail locations
that exclusively feature a single brand, such as Thomasville, Drexel Heritage or Henredon. We believe distributing our products through dedicated, single-brand stores strengthens brand awareness,
provides well-informed and focused sales personnel and encourages the purchase of multiple items per visit.

There
has been a significant change in recent years in the manner by which we bring products to market. Where we have traditionally been a domestic furniture manufacturer, we have
shifted to a blended strategy, mixing domestic production with products sourced from offshore.

We
have closed or announced the closing of 38 domestic case goods and upholstery manufacturing facilities since the start of 2001, though we still own and operate 21 such facilities,
located in North Carolina, Mississippi, and Virginia.

An
increasing percentage of our products are being sourced from manufacturers located offshore, primarily in China, the Philippines, Indonesia, and Vietnam. We design and engineer these
products, and then have them manufactured to our specifications by independent offshore manufacturers. We also own and operate 2 offshore manufacturing facilities located in the Philippines and
Indonesia.

On
October 16, 2007 we announced our intent to divest Hickory Business Furniture (HBF) a wholly owned subsidiary that designs and manufactures business furniture in the
mid- to upper-price range. We believe this transaction will be completed by the end of the first quarter of 2008; therefore this business unit is reflected as a discontinued operation.

16

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Results of Operations

As an aid to understanding our results of operations on a comparative basis, the following table has been prepared to set forth certain statement of operations
and other data for continuing operations for 2007, 2006, and 2005:

|                                                                     |  | Year Ended December 31, |        
|-------------------------------------------------------------------- |  | ----------------------- | -------
|
|
|Net sales                                                            |  | $                       | 2,082.1
|Cost of sales                                                        |  |                         | 1,666.0
|                                                                     |  |                         |        
|Gross Profit                                                         |  |                         | 416.1  
|Selling, general and administrative expenses                         |  |                         | 469.4  
|                                                                     |  |                         |        
|Earnings (loss) from operations                                      |  |                         | (53.3  
|Interest expense                                                     |  |                         | 37.4   
|Other income, net                                                    |  |                         | 10.2   
|                                                                     |  |                         |        
|Earnings (loss) from continuing operations before income tax expense |  |                         | (80.5  
|Income tax expense (benefit)                                         |  |                         | (29.3  
|                                                                     |  |                         |        
|Net earnings (loss) from continuing operations                       |  | $                       | (51.2  
|                                                                     |  |                         |        
|Earnings per common sharediluted:                                   |  |                         |        
|Earning (loss) from continuing operations                            |  | $                       | (1.06  
|                                                                     |  |                         |        

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Net sales for 2007 were $2,082.1 million compared to $2,361.7 million in 2006, a decrease of $279.6 million or 11.8%. The decrease in net
sales was driven by weak retail conditions for all brands resulting in higher price discounts and lower sales volume, partially offset by the sales impact of additional Company-owned stores in 2007.
The number of Company-owned stores reached 46 in 2007 prior to the closure of 18 stores in December 2007. Company-owned stores totaled 28 at December 31, 2007 versus
21 stores at December 31, 2006.

Gross
profit for 2007 was $416.1 million compared to $507.9 million in 2006. Gross margin decreased from 21.5% in 2006 to 20.0% in 2007. The decline in gross profit is
attributable to the lower sales volume, increased price discounting, reduced capacity utilization and increased costs associated with the higher inventory levels, partially offset by higher gross
profits at retail and cost savings within our supply chain. Restructuring, asset impairment and severance charges included in cost of sales were $5.8 million in 2007 and $5.3 million in
2006.

Selling,
general and administrative expenses increased to $469.4 million in 2007 from $432.3 million in 2006. As a percentage of net sales selling, general and
administrative expenses increased from 18.3% in 2006 to 22.6% in 2007. Included in selling, general and administrative expenses were restructuring, asset impairment and severance charges of
$29.2 million in 2007 and $2.1 million in 2006. Also contributing to the increase in selling, general and administrative expenses were costs associated with the operations of the
additional Company-owned retail stores ($17.4 million) and an increase in bad debt expense ($13.6 million) partially offset by decreases in stock option expense ($2.8 million),
retirement costs ($2.6 million) and advertising costs ($1.7 million).

17

---



Interest
expense for 2007 totaled $37.4 million compared to $17.7 million in 2006. The increase in interest expense resulted from increased interest rates, amortization of
waiver fees for amendments to our prior debt facilities, the payment of a make-whole premium related to the refinancing of the prior debt facilities and the write off of deferred financing
fees associated with the prior debt facilities. (See "Financial ConditionFinancing Arrangements" for further discussion of our debt refinancing).

Year Ended December 31,2007

2006Interest expense

$
21.1

$
17.7Waiver fees and write off of deferred financing fees


2.1


Make whole premium, net of swap gain


14.2


$
37.4

$
17.7


Other
income, net consists of the following (in millions):

Year Ended December 31,2007

2006Interest income

$
3.7

$
2.6Gain on termination of hedge accounting


4.1


8.9Other


2.4


3.4$
10.2

$
14.9


The
increase in interest income is due to the increase in short-term investments and notes receivable in 2007. In the second quarter of 2007, in anticipation of refinancing
the Note Purchase Agreement, we discontinued hedge accounting treatment on a treasury lock agreement and recorded a gain of $4.1 million. In the second quarter of 2006, in anticipation of
refinancing our revolving credit facility, we discontinued hedge accounting treatment on an interest rate swap agreement and recorded a gain of $8.9 million.

Income
tax benefit for 2007 totaled $29.3 million, producing an effective tax rate of 36.4%. Income tax expense for 2006 totaled $22.8 million, producing an effective tax
rate of 31.3%. The increase in the effective tax rate for 2007 resulted from a lower proportion of income subject to tax in lower marginal rate foreign tax jurisdictions in 2007, a higher proportion
of domestic income (loss) in states with higher marginal rates, reduced federal benefits due to the expiration of extra-territorial income exclusion and the non-availability of the
domestic manufacturing deduction due to domestic losses.

Earnings
(loss) from continuing operations per common share on a diluted basis were ($1.06) in 2007 and $1.02 in 2006. Weighted average shares outstanding used in the calculation of
earnings per common share on a diluted basis were 48.4 million in 2007 and 48.8 million in 2006. The reduction in weighted average shares was due to the full year impact of stock
repurchases during the first six months of 2006.

Net
sales from discontinued operations were $63.6 million in 2007 compared with $56.5 million in 2006. Net earnings were $5.6 million in 2007 compared with
$5.1 million in 2006.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Net sales for 2006 were $2,361.7 million compared to $2,342.5 million in 2005, an increase of $19.2 million or 0.8%. Thomasville and Lane
experienced strong sales growth early in the year; however, slower traffic at retail and competitive pressures resulted in a weak second half of the year for all Brands. Broyhill case goods were
negatively impacted in each quarter due to the transition from

18

---



domestic
production to an imported product. The increase in Company-owned stores from 14 to 21 provided a modest addition to net sales.

Gross
profit for 2006 was $507.9 million compared to $523.1 million in 2005. Gross margin decreased from 22.3% in 2005 to 21.5% in 2006. The majority of the decline in
gross margin is attributable to increased discounting in an attempt to stimulate sales in the second half of the year. Increases in gross
margin attributable to the additional retail stores (which operate at significantly higher gross margins) and reduced restructuring charges were offset by increases in raw material prices.

Selling,
general and administrative expenses increased to $432.3 million in 2006 from $428.9 million in 2005; however, as a percentage of net sales remained flat at 18.3%.
The increase in selling, general and administrative expenses was due to the expensing of stock options ($5.7 million), increased expenses for Company-owned stores ($8.0 million),
additional bad debt expenses ($4.4 million) and additional retirement costs ($3.0 million), partially offset by a decline in restructuring charges ($11.9 million) and reduced
advertising expenses ($3.4 million).

Interest
expense for 2006 totaled $17.7 million compared to $11.9 million in 2005. The increase in interest expense resulted from the refinancing of the credit facility,
issuance of term notes with higher interest rates and the termination of hedge accounting on the interest rate swaps.

Other
income, net for 2006 totaled $14.9 million compared to $4.5 million for 2005. For 2006, other income consisted of interest on short-term investments and
notes receivable of $2.6 million, a gain realized from the termination of hedge accounting on interest rate swaps of $8.9 million and other miscellaneous income and expenses of
$3.4 million. This compares with interest income of $2.6 million and other miscellaneous income and expense items totaling $1.9 million in 2005.

Income
tax expense for 2006 totaled $22.8 million, producing an effective tax rate of 31.3% compared with an effective tax rate of 33.2% for 2005. The decrease in the effective
tax rate for 2006 was primarily the result of a higher proportion of income subject to tax in lower rate foreign tax jurisdictions. As in the past, the rate has been reduced by the Federal Domestic
Manufacturing deductions enacted under the American Job Creations Act and federal and state income tax credits.

Earnings
from continuing operations per common share on a diluted basis were $1.02 in 2006 and $1.11 in 2005. Weighted average shares outstanding used in the calculation of earnings per
common share on a diluted basis were 48.8 million in 2006 and 52.1 million in 2005. The reduction in average shares outstanding was due to the repurchase of 1.7 million shares in
2006 and the full year impact of the repurchase of 4.1 million shares in 2005.

Financial Condition and Liquidity

Liquidity

Cash and cash equivalents at December 31, 2007 totaled $118.8 million compared to $26.6 million at December 31, 2006. Net cash
provided by operating activities totaled $152.9 million in 2007 compared with net cash used by operating activities of $26.9 million in 2006. This increase in cash flow from operations
in 2007 is attributable to the reduction in working capital particularly the reduction in inventory resulting from management's targeted efforts to reduce inventory to more normal levels following the
substantial increase in inventory levels in 2006 and reduction in accounts receivable resulting from reduced sales partially offset by the impact of the decline in net earnings. Net cash provided by
operating activities in 2006 decreased to a net use of cash of $26.9 million from net cash provided of $189.0 million in 2005. The decrease was principally the result of substantially
higher levels of working capital investment, particularly higher levels of inventory and accounts receivable and lower levels of accounts payable. Net cash provided by investing activities totaled
$4.5 million in 2007 compared with net cash used of $14.8 million in 2006 and $18.7 million in 2005. The decrease in cash used in investing activities is the result of asset sales
proceeds of $23.2 million in 2007 compared with $9.9 million in 2006 and 9.8 million in 2005 and from reduced purchases of property, plant and

19

---



equipment
totaling $14.4 million in 2007, $24.7 million in 2006 and $28.5 million in 2005. Net cash used in financing activities totaled $65.2 million in 2007 compared with
$46.1 in 2006 and $107.2 million in 2005. Net cash used by financing activities in 2007 consisted primarily of payment of long-term debt ($10.8 million), cash deposited in a
restricted account for the payment of long-term debt ($20.0 million) and cash dividends ($31.0 million). Net cash used by financing activities in 2006 consisted primarily of
payment of cash dividends ($31.3 million) and the purchase of treasury stock ($40.1 million) partially offset by additions to long-term debt ($9.2 million). The decrease in
cash used by financing activities in 2006 compared with 2005 was principally due to a reduction in purchases of treasury stock of $42.6 million.

Working
capital was $712.5 million at December 31, 2007 compared to $752.6 million at December 31, 2006. The current ratio was
4.8-to-1 at December 31, 2007 compared to 5.0-to-1 at December 31, 2006. The decrease in working capital primarily resulted from
reductions in accounts receivable and inventory, and an increase in current maturities of long-term debt partially offset by a decrease in accrued expenses and an increase in cash and cash
equivalents and restricted cash. We expect to continue reducing working capital; however, the December 31, 2007 balance is comparable with historical balances (see Five-Year Consolidated
Financial Review) and future reductions are expected to be modest.

Financing Arrangements

As of December 31, 2007, long-term debt consisted of the following (in millions):

Revolving credit facilitysecured

$
300.0Other


0.8300.8Less: current maturities


20.8Long-term debt

$
280.0


On
August 9, 2007, we refinanced our revolving credit facility with a group of financial institutions. The new facility is a 5-year secured revolving credit facility
with a commitment of $550.0 million subject to a borrowing base of certain eligible accounts receivable and inventory. The new facility allows for the issuance of letters of credit and cash
borrowings. Letters of credit are limited to no more than $100.0 million, with cash borrowings limited by the facilities borrowing base amount less letters of credit outstanding. As of
December 31, 2007, there were $300.0 million of cash borrowings and $28.9 million in letters of credit outstanding. In December 2007, we deposited $20.0 million in a cash
collateral account at the lead bank of our revolving credit facility. This $20.0 million, which was classified as restricted cash as of December 31, 2007 was used to repay a portion of
our long-term debt on January 14, 2008. The portion of the long-term debt related to this payment was reclassified to current maturities as of December 31, 2007.
Based upon our borrrowing base as of December 31, 2007 we could have borrowed an additional $4.5 million. An additional $75.0 million would have been available had we been able to
meet certain financial covenants including a fixed charge coverage ratio. On February 15, 2008, we repaid an additional $30.0 million of our long-term debt.

Cash
borrowings under the secured revolving credit facility will be at either (i) a base rate (the greater of the prime rate and the Federal Funds Effective Rate plus
1/2%) or (ii) an adjusted Eurodollar rate plus an applicable margin, depending upon the type of loan selected. The applicable margin over the adjusted Eurodollar rate is 1.25%
for the first six months of the facility and thereafter will fluctuate with excess availability. As of December 31, 2007, loans outstanding under the secured revolving credit facility consisted
of $300.0 million based on the adjusted Eurodollar rate at a weighted average interest rate of 6.3%.

20

---



The
revolving credit facility is guaranteed by all of our domestic subsidiaries and is secured primarily by all of our accounts receivable, inventory and cash. Availability under the
facility will fluctuate based upon a borrowing base calculation consisting of eligible accounts receivable and inventory. Certain covenants and restrictions, including a fixed charge coverage ratio,
will become effective if excess availability falls below certain thresholds. We currently would not comply with the fixed charge coverage ratio; however, we do not expect to fall below the required
excess availability threshold in 2008. We believe that the revolving credit facility along with our current cash position will be adequate to meet our liquidity requirements for the foreseeable
future.

Funds
borrowed under the secured revolving credit facility were used to repay in full the existing indebtedness in the amount of $150.0 million owed pursuant to the terms of the
unsecured revolving credit facility dated April 21, 2006, which terminated upon payment. We also repaid in full the $150.0 million of senior notes issued under the Note Purchase
Agreement dated May 17, 2006. In connection with the termination of the Note Purchase Agreement, we paid and charged to interest expense a make-whole premium of
$17.0 million. In order to mitigate the risk associated with the make-whole premium we entered into a financial hedging agreement to offset changes in the interest rate and
recognized a gain of $2.8 million. This gain was recorded as a reduction of interest expense. In addition, due to the extinguishment of these two credit facilities, deferred financing fees of
$1.0 million were charged to interest expense. The impact of these items related to the refinancing of the prior debt facilities was to increase interest expense by $15.2 million for the
twelve months December 31, 2007.

The
following table summarizes the payments related to our outstanding contractual obligations as of December 31, 2007:

|                                               |                           | Less than
1 year |      | 1-3 years |   | 4-5 years |      | More than
5 years |       | Total
|---------------------------------------------- | ------------------------- | ---------------- | ---- | --------- | - | --------- | ---- | ----------------- | ----- | -----
|Long-term debt obligations:                    |                           |                  |      |           |   |           |      |                   |       |      
|                                               | Revolving Credit Facility |                  | $    | 20.0      |   | $         |     |                   | $     | 280.0
|                                               | Other                     |                  |      | 0.8       |   |           |     |                   |       |     
|                                               | Interest expense(1)       |                  |      | 17.7      |   |           | 35.3 |                   |       | 28.4 
|Operating lease obligations (net of subleases) |                           |                  | 41.2 |           |   | 70.6      |      |                   | 52.1  |      
|Purchase obligations(2)                        |                           |                  |     |           |   |          |      |                   |      |      
|                                               |                           |                  |      |           |   |           |      |                   |       |      
|                                               |                           | $                | 79.7 |           | $ | 105.9     |      | $                 | 360.5 |      
|                                               |                           |                  |      |           |   |           |      |                   |       |      

---

Other

Market Risk

We have exposure to market risk from changes in interest rates. Our exposure to interest rate risk consists of interest expense on our floating rate revolving
credit facility and interest income on our cash equivalents. A 10% interest rate increase would result in additional interest expense of $1.9 million annually.

21

---



Funded Status of the Defined Benefit Pension Plan

As of December 31, 2007, the projected benefit obligation of our defined benefit pension plan exceeded the fair value of the plan's assets. As a result, a
pension liability of $50.1 million was recorded at December 31, 2007, a decrease from the $61.4 million liability at December 31, 2006. This decrease resulted from a
$12.0 million contribution in 2007.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.

We
have chosen accounting policies we believe are appropriate to report accurately and fairly our operating results and financial position and we apply these policies in a consistent
manner. We consider the following policies to be critical in the preparation of our consolidated financial statements.

Revenue Recognition

Revenues (sales) are recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) there is a fixed or
determinable price; (3) delivery has occurred; and (4) collectibility is reasonably assured. These criteria are satisfied and revenue recognized primarily upon shipment of product.
Appropriate provisions for customer returns and discounts are recorded based upon historical results.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance for
doubtful accounts is based upon the review of specific customer account balances, historical experience and an overall aging of the accounts receivable.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories are regularly reviewed for excess quantities and
obsolescence based upon historical experience, specific identification of discontinued items, future demand and market conditions and appropriate adjustments are recorded. If actual demand or market
conditions are less favorable than estimated then additional inventory write-downs would be required.

Long-lived Assets

Long-lived assets, which consist primarily of goodwill, trademarks and property, plant and equipment, are reviewed for impairment annually or whenever
events or changes in business circumstances indicate the carrying values of the assets may not be recoverable. If we determine the carrying value of the long-lived asset may not be
recoverable, a permanent impairment
charge would be recorded in the amount by which the long-lived asset exceeds fair value.

Retirement Plans

Defined benefit plan expense and obligation calculations are dependent on various assumptions. These assumptions include discount rate, expected return on plan
assets and rate of compensation increase. The discount rate used to calculate the retirement obligations at December 31, 2007 was 6.25% and was determined using Moody's Aa bond index customized
to the plan's projected benefit

22

---



cash
flow. In 2007, retirement plan expense was calculated using an expected return on plan assets of 7.5% and the rate of compensation increases of 3.5%. The expected return on plan assets was
developed through analysis of historical market returns by asset class, current market conditions and the trust funds past experience. The rate of compensation increases was based upon historical
experience. We believe these assumptions to be reasonable; however, differences in assumptions would impact the calculated obligation and future expense. For example, a 0.25% change in the discount
rate would result in a $14 million change in the pension obligation and a 0.25% change in the expected return on plan assets would result in a $0.9 million change in pension expense.

On
December 31, 2005, the defined benefit plans were amended, freezing and ceasing future benefit accruals as of that date. Certain transition benefits will be provided to
participants who had attained age 50 and had completed 10 years of services as of December 31, 2005. We currently provide benefits to our employees through an increased match in the
defined contribution plan.

Recently Issued Statements of Financial Accounting Standards

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"),Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in U. S. GAAP, and expands the disclosure requirements regarding fair value
measurements. The rule does not introduce new requirements mandating the use of fair value. SFAS 157 defines fair value as "the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date." The definition is based on an exit price rather than an entry price, regardless of whether the entity plans
to hold or sell the asset. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The
effective date for SFAS 157 has been delayed until fiscal years beginning after November 15, 2008 for non-financial assets and liabilities except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis. We are currently assessing the impact, if any, of SFAS 157 on our consolidated financial statements.

In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007) ("SFAS 141R"),Business
Combinations. SFAS 141R requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. Earlier adoption is prohibited. We are currently assessing the impact of SFAS 141R on our consolidated financial statements; however, the impact
will be limited to business combinations occurring on or after January 1, 2009.

In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 ("SFAS 159"),The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115. SFAS 159 permits entities to choose, at specified election dates, to measure
many financial instruments and certain other items at fair value that are not currently measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected
would be reported in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements in order to facilitate comparisons between entities choosing
different measurement attributes for similar types of assets and liabilities. SFAS 159 does not affect existing accounting requirements for certain assets and liabilities to be carried at fair
value. SFAS 159 is effective as of the beginning of a reporting entity's first fiscal year that begins after November 15, 2007. We are currently assessing the impact, if any, of
SFAS 159 on our consolidated financial statements.

In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (SFAS 160"),Noncontrolling Interests in Consolidated
Financial StatementsAn Amendment of ARB

23

---



No. 51. SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We are currently assessing
the impact, if any, of SFAS 160 on our consolidated financial statements.

In
September 2006, the Emerging Issues Task Force issued EITF 06-4,Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements. This consensus concludes that for a split-dollar life insurance arrangement within the scope of this Issue, an employer
should recognize a liability for future benefits in accordance with FASB Statement No. 106 (if, in substance, a postretirement benefit plan exists) or APB 12 (if, the arrangement is, in
substance an individual deferred compensation contract) based upon the substantive agreement with the employee. The consensus is effective for fiscal years beginning after December 15, 2007.
The effects of applying this consensus should be recognized through either (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other
components of equity or net assets in the statement of financial position as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application
to all prior periods. We anticipate the adoption of this consensus in 2008 will result in a cumulative-effect adjustment of $0.8 million before income tax.

Forward-Looking Statements

Matters discussed in this filing and in our public disclosures, whether written or oral, relating to future events or our future performance, including any
discussion, express or implied, of our anticipated growth, operating results, future earnings per share, plans and objectives, contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934." These statements are often identified by the words "will", "believe", "positioned",
"estimate", "project", "target", "continue", "intend", "expect", "future", "anticipates", and similar expressions that are not statements of historical fact. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Our actual results and timing of certain events could differ materially from those
anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" in this Annual Report on
Form 10-K for the year ended December 31, 2007, our quarterly reports on Form 10-Q, and in our other public filings with the Securities and Exchange
Commission. Such factors include, but are not limited to: risks associated with the execution of our strategic plan; changes in economic conditions; loss of market share due to competition; failure to
forecast demand or anticipate or respond to changes in consumer tastes and fashion trends; failure to achieve projected mix of product sales; business failures of large customers; distribution and
cost savings programs; manufacturing realignments; increased reliance on offshore (import) sourcing of various products; fluctuations in the cost, availability and quality of raw materials; product
liability uncertainty; environmental regulations; future acquisitions; impairment of goodwill and other intangible assets; anti-takeover provisions which could result in a decreased
valuation of our common stock; loss of funding sources; and our ability to open and operate new retail stores successfully. It is routine for internal projections and expectations to change as the
year or each quarter in the year progresses, and therefore it should be clearly understood that all forward-looking statements and the internal projections and beliefs upon which we base our
expectations included in this report or other periodic reports are made only as of the date made and may change. While we may elect to update forward-looking statements at some point in the future, we
do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

We have exposure to market risk from changes in interest rates. Our exposure to interest rate risk consists of interest expense on our floating rate revolving
credit facility and interest income on our cash equivalents. We periodically enter into swap agreements to manage our fluctuating interest rates. However, we did not have any interest rate swap
agreements at December 31, 2007. A 10% interest rate increase would result in additional interest expense of $1.9 million annually. All derivative instruments at December 31,
2007, which are primarily currency hedges, are entered into for other than trading purposes and are not material to our financial position and results of operations.

24

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Item 8.    Financial Statements and Supplementary Data

FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES    Index to Consolidated Financial Statements and Schedules

|                                                        |                                                                                                                                                        | Page No.   
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------
|Report of Independent Registered Public Accounting Firm |                                                                                                                                                        | 26         
|Consolidated Financial Statements:                      |                                                                                                                                                        |            
|                                                        | Consolidated Balance Sheets as of December 31, 2007 and 2006                                                                                           |            
|                                                        | Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2007                                           |            
|                                                        | Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2007                                           |            
|                                                        | Consolidated Statements of Shareholders' Equity and Comprehensive Income (loss) for each of the years in the three-year period ended December 31, 2007 |            
|                                                        | Notes to Consolidated Financial Statements                                                                                                             |            
|                                                        | Consolidated Financial Statement Schedules:                                                                                                            |            
|                                                        |                                                                                                                                                        | Schedule II
|                                                        | Valuation and qualifying accounts                                                                                                                      |            

25

---





Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
Furniture Brands International, Inc.:

We
have audited the accompanying consolidated balance sheets of Furniture Brands International, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of operations, shareholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2007.
In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on
our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Furniture Brands International, Inc.
and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2007, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Note 10 to the consolidated financial statements, the Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes", effective
January 1, 2007. As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standard No. 123 (Revised 2004), "Share
Based Payments", effective January 1, 2006. As discussed in Note 11 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards
No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", effective December 31, 2006.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Furniture Brands International, Inc.'s internal control
over financial reporting as of December 31, 2007, based on the criteria established inInternal ControlIntegrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2008 expressed an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.

/s/
KPMG LLP

St. Louis,
Missouri

February 29,
2008

26

---





FURNITURE BRANDS INTERNATIONAL, INC.        CONSOLIDATED BALANCE SHEETS

|(Dollars in thousands)                            |                                                                                                                                              | December 31,
2007                          |         | December 31,
2006 |          
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | ---------
|Assets                                            |                                                                                                                                              |                                            |         |                   |          
|Current assets:                                   |                                                                                                                                              |                                            |         |                   |          
|                                                  | Cash and cash equivalents                                                                                                                    |                                            | $       | 118,764           |          
|                                                  | Cashrestricted                                                                                                                              |                                            |         | 20,000            |          
|                                                  | Receivables, less allowances of $45,467 ($29,025 at December 31, 2006)                                                                       |                                            |         | 292,694           |          
|                                                  | Inventories (Note 4)                                                                                                                         |                                            |         | 401,302           |          
|                                                  | Deferred income taxes                                                                                                                        |                                            |         | 36,978            |          
|                                                  | Prepaid expenses and other current assets                                                                                                    |                                            |         | 17,880            |          
|                                                  | Current assets of discontinued operations                                                                                                    |                                            |         | 12,236            |          
|                                                  |                                                                                                                                              |                                            |         |                   |          
|                                                  |                                                                                                                                              | Total current assets                       |         |                   | 899,854  
|                                                  |                                                                                                                                              |                                            |         |                   |          
|Property, plant and equipment, net (Note 5)       |                                                                                                                                              |                                            | 178,564 |                   |          
|Goodwill (Note 6)                                 |                                                                                                                                              |                                            | 167,356 |                   |          
|Other intangible assets (Note 6)                  |                                                                                                                                              |                                            | 162,571 |                   |          
|Other assets                                      |                                                                                                                                              |                                            | 36,770  |                   |          
|Noncurrent assets of discontinued operations      |                                                                                                                                              |                                            | 17,963  |                   |          
|                                                  |                                                                                                                                              |                                            |         |                   |          
|                                                  |                                                                                                                                              | Total assets                               |         | $                 | 1,463,078
|                                                  |                                                                                                                                              |                                            |         |                   |          
|Liabilities and Shareholders' Equity              |                                                                                                                                              |                                            |         |                   |          
|Current liabilities:                              |                                                                                                                                              |                                            |         |                   |          
|                                                  | Current maturities of long-term debt                                                                                                         |                                            | $       | 20,800            |          
|                                                  | Accounts payable                                                                                                                             |                                            |         | 93,557            |          
|                                                  | Accrued employee compensation                                                                                                                |                                            |         | 21,633            |          
|                                                  | Other accrued expenses                                                                                                                       |                                            |         | 46,102            |          
|                                                  | Current liabilities of discontinued operations                                                                                               |                                            |         | 5,307             |          
|                                                  |                                                                                                                                              |                                            |         |                   |          
|                                                  |                                                                                                                                              | Total current liabilities                  |         |                   | 187,399  
|Long-term debt (Note 7)                           |                                                                                                                                              |                                            | 280,000 |                   |          
|Deferred income taxes                             |                                                                                                                                              |                                            | 28,859  |                   |          
|Other long-term liabilities                       |                                                                                                                                              |                                            | 121,913 |                   |          
|Noncurrent liabilities of discontinued operations |                                                                                                                                              |                                            | 141     |                   |          
|Shareholders' equity:                             |                                                                                                                                              |                                            |         |                   |          
|                                                  | Preferred stock, 10,000,000 shares authorized, no par valuenone issued                                                                      |                                            |         |                  |          
|                                                  | Common stock, 200,000,000 shares authorized, $1.00 stated value56,482,541 shares issued at December 31, 2007 and December 31, 2006 (Note 9) |                                            |         | 56,483            |          
|                                                  | Paid-in capital                                                                                                                              |                                            |         | 226,773           |          
|                                                  | Retained earnings                                                                                                                            |                                            |         | 768,731           |          
|                                                  | Accumulated other comprehensive expense (Note 13)                                                                                            |                                            |         | (26,965           | )        
|                                                  | Treasury stock at cost (7,984,370 shares at December 31, 2007 and 8,146,289 shares at December 31, 2006)                                     |                                            |         | (180,256          | )        
|                                                  |                                                                                                                                              |                                            |         |                   |          
|                                                  |                                                                                                                                              | Total shareholders' equity                 |         |                   | 844,766  
|                                                  |                                                                                                                                              |                                            |         |                   |          
|                                                  |                                                                                                                                              | Total liabilities and shareholders' equity |         | $                 | 1,463,078
|                                                  |                                                                                                                                              |                                            |         |                   |          

See
accompanying notes to consolidated financial statements.

27

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FURNITURE BRANDS INTERNATIONAL, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                     |                                            | Year Ended December 31,
|-------------------------------------------------------------------- | ------------------------------------------ | -----------------------
|
|Net sales                                                            |                                            | $                      
|Cost of sales                                                        |                                            |                        
|                                                                     |                                            |                        
|Gross profit                                                         |                                            |                        
|Selling, general and administrative expenses                         |                                            |                        
|                                                                     |                                            |                        
|Operating earnings (loss)                                            |                                            |                        
|Interest expense                                                     |                                            |                        
|Other income, net (Note 16)                                          |                                            |                        
|                                                                     |                                            |                        
|Earnings (loss) from continuing operations before income tax expense |                                            |                        
|Income tax expense (benefit) (Note 10)                               |                                            |                        
|                                                                     |                                            |                        
|Net earnings (loss) from continuing operations                       |                                            |                        
|Net earnings from discontinued operations                            |                                            |                        
|                                                                     |                                            |                        
|Net earnings (loss)                                                  |                                            | $                      
|                                                                     |                                            |                        
|Earnings per common sharebasic and diluted:                         |                                            |                        
|                                                                     | Earnings (loss) from continuing operations |                        
|                                                                     | Earnings from discontinued operations      |                        
|                                                                     |                                            |                        
|                                                                     | Net earnings (loss)                        |                        
|                                                                     |                                            |                        
|Weighted average shares of common stock outstanding:                 |                                            |                        
|                                                                     | Basic                                      |                        
|                                                                     | Diluted                                    |                        
|                                                                     |                                            |                        

See
accompanying notes to consolidated financial statements.

28

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FURNITURE BRANDS INTERNATIONAL, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                                     | Year Ended December 31,                                                         |                                            
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------
|
|Cash flows from operating activities:                |                                                                                                     |                                                                                 |                                            
|                                                     | Net earnings (loss)                                                                                 |                                                                                 | $                                          
|                                                     | Adjustments to reconcile net earnings (loss) to net cash provided by (used in)operating activities: |                                                                                 |                                            
|                                                     |                                                                                                     | Depreciation and amortization                                                   |                                            
|                                                     |                                                                                                     | Compensation expense related to stock option grants and restricted stock awards |                                            
|                                                     |                                                                                                     | Tax benefit from the exercise of stock options                                  |                                            
|                                                     |                                                                                                     | Provision (benefit) for deferred income taxes                                   |                                            
|                                                     |                                                                                                     | Other, net                                                                      |                                            
|                                                     |                                                                                                     | Changes in operating assets and liabilities:                                    |                                            
|                                                     |                                                                                                     |                                                                                 | Accounts receivable                        
|                                                     |                                                                                                     |                                                                                 | Inventories                                
|                                                     |                                                                                                     |                                                                                 | Prepaid expenses and other assets          
|                                                     |                                                                                                     |                                                                                 | Accounts payable and other accrued expenses
|                                                     |                                                                                                     |                                                                                 | Other long-term liabilities                
|                                                     |                                                                                                     |                                                                                 |                                            
|                                                     | Net cash provided by (used in) operating activities                                                 |                                                                                 |                                            
|                                                     |                                                                                                     |                                                                                 |                                            
|Cash flows from investing activities:                |                                                                                                     |                                                                                 |                                            
|                                                     | Acquisition of stores, net of cash acquired                                                         |                                                                                 |                                            
|                                                     | Proceeds from the disposal of assets                                                                |                                                                                 |                                            
|                                                     | Additions to property, plant and equipment                                                          |                                                                                 |                                            
|                                                     |                                                                                                     |                                                                                 |                                            
|                                                     | Net cash provided by (used in) investing activities                                                 |                                                                                 |                                            
|                                                     |                                                                                                     |                                                                                 |                                            
|Cash flows from financing activities:                |                                                                                                     |                                                                                 |                                            
|                                                     | Proceeds from termination of cash flow hedges                                                       |                                                                                 |                                            
|                                                     | Payments for debt issuance costs                                                                    |                                                                                 |                                            
|                                                     | Additions to long-term debt                                                                         |                                                                                 |                                            
|                                                     | Payments of long-term debt                                                                          |                                                                                 |                                            
|                                                     | Funding of restricted cash account for payment of current maturities of long-term debt              |                                                                                 |                                            
|                                                     | Proceeds from exercise of stock options                                                             |                                                                                 |                                            
|                                                     | Tax benefit from the exercise of stock options                                                      |                                                                                 |                                            
|                                                     | Payments of cash dividends                                                                          |                                                                                 |                                            
|                                                     | Payments for the purchase of treasury stock                                                         |                                                                                 |                                            
|                                                     |                                                                                                     |                                                                                 |                                            
|                                                     | Net cash used in financing activities                                                               |                                                                                 |                                            
|                                                     |                                                                                                     |                                                                                 |                                            
|Net increase (decrease) in cash and cash equivalents |                                                                                                     |                                                                                 | 92,199                                     
|Cash and cash equivalents at beginning of period     |                                                                                                     |                                                                                 | 26,565                                     
|                                                     |                                                                                                     |                                                                                 |                                            
|Cash and cash equivalents at end of period           |                                                                                                     | $                                                                               | 118,764                                    
|                                                     |                                                                                                     |                                                                                 |                                            
|Supplemental Disclosure:                             |                                                                                                     |                                                                                 |                                            
|                                                     | Cash payments for income taxes, net                                                                 |                                                                                 | $                                          
|                                                     |                                                                                                     |                                                                                 |                                            
|                                                     | Cash payments for interest expense                                                                  |                                                                                 | $                                          
|                                                     |                                                                                                     |                                                                                 |                                            

See
accompanying notes to consolidated financial statements.

29

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FURNITURE BRANDS INTERNATIONAL, INC.        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND  COMPREHENSIVE INCOME (LOSS)

|                                                            |                                                                                    | Year Ended December 31,                       |        
|----------------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------- | -------
|
|Common Stock:                                               |                                                                                    |                                               |        
|                                                            | Beginning balance                                                                  |                                               | $      
|                                                            | Stock plans activity (Note 8)                                                      |                                               |        
|                                                            |                                                                                    |                                               |        
|                                                            | Ending balance                                                                     |                                               | $      
|                                                            |                                                                                    |                                               |        
|Paid-In Capital:                                            |                                                                                    |                                               |        
|                                                            | Beginning balance                                                                  |                                               | $      
|                                                            | Stock plans activity (Note8)                                                       |                                               |        
|                                                            |                                                                                    |                                               |        
|                                                            | Ending balance                                                                     |                                               | $      
|                                                            |                                                                                    |                                               |        
|Retained Earnings:                                          |                                                                                    |                                               |        
|                                                            | Beginning balance                                                                  |                                               | $      
|                                                            | Net earnings (loss)                                                                |                                               |        
|                                                            | Adjustment to adopt FIN 48                                                         |                                               |        
|                                                            | Cash dividends (per share 2007-$0.64, 2006-$0.64, 2005-$0.60)                      |                                               |        
|                                                            |                                                                                    |                                               |        
|                                                            | Ending balance                                                                     |                                               | $      
|                                                            |                                                                                    |                                               |        
|Accumulated Other Comprehensive Income (Expense): (Note 13) |                                                                                    |                                               |        
|                                                            | Beginning balance                                                                  |                                               | $      
|                                                            | Other comprehensive income (expense)                                               |                                               |        
|                                                            | Adjustment to initially apply SFAS No. 158, net of income tax benefit of $3,031    |                                               |        
|                                                            |                                                                                    |                                               |        
|                                                            | Ending balance                                                                     |                                               | $      
|                                                            |                                                                                    |                                               |        
|Treasury Stock:                                             |                                                                                    |                                               |        
|                                                            | Beginning balance                                                                  |                                               | $      
|                                                            | Stock plans activity (Note 8)                                                      |                                               |        
|                                                            | Purchase of treasury stock (1,734,951 shares in 2006 and 4,125,588 shares in 2005) |                                               |        
|                                                            |                                                                                    |                                               |        
|                                                            | Ending balance                                                                     |                                               | $      
|                                                            |                                                                                    |                                               |        
|Total Shareholders' Equity                                  |                                                                                    | $                                             | 844,766
|                                                            |                                                                                    |                                               |        
|Comprehensive income (loss):                                |                                                                                    |                                               |        
|                                                            | Net earnings                                                                       |                                               | $      
|                                                            | Other comprehensive income, net of tax:                                            |                                               |        
|                                                            |                                                                                    | Pension liability                             |        
|                                                            |                                                                                    | Foreign currency translation                  |        
|                                                            |                                                                                    | Financial instruments accounted for as hedges |        
|                                                            |                                                                                    |                                               |        
|                                                            |                                                                                    | Other comprehensive income (expense)          |        
|                                                            |                                                                                    |                                               |        
|                                                            |                                                                                    | $                                             | (39,426
|                                                            |                                                                                    |                                               |        

See
accompanying notes to consolidated financial statements.

30

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FURNITURE BRANDS INTERNATIONAL, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (Dollars in thousands except per share data)

1. THE COMPANY

Furniture Brands is a vertically integrated operating company that is one of the nation's leading designers, manufacturers, and retailers of home furnishings. We
market through a wide range of retail channels, from mass merchant stores to single-branded and independent dealers to specialized interior designers. We serve customers through some of the best known
and most respected brands in the furniture industry, including Broyhill, Lane, Thomasville, Drexel Heritage, Henredon, Pearson, Hickory Chair, Laneventure, and Maitland-Smith. Through these brands, we
design, manufacture, source, market and distribute a full-line of branded products consisting of both wood and upholstered furniture.

Substantially
all of our sales are made to unaffiliated furniture retailers. We have a diversified customer base with no one customer accounting for 10% or more of consolidated net sales
and other than the retail furniture industry no particular concentration of credit risk in one economic sector. Foreign operations and foreign net sales are not material.

2. SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are set forth below.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses
during the reported period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the Furniture Brands accounts and those of our subsidiaries. All material intercompany transactions are eliminated
in consolidation. The Company's fiscal year ends on December 31. The subsidiaries included in the consolidated financial statements report their results of operations as of the Saturday closest
to December 31. Accordingly, the results of operations will periodically include a 53-week fiscal year. Fiscal years 2007, 2006 and 2005 were all 52-week years. Fiscal
year 2008 will be a 53-week year.

Cash and Cash Equivalents

We consider all short-term investments with an original maturity of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories are regularly reviewed for excess quantities and
obsolescence based upon historical experience, specific identification of discontinued items, future demand and market conditions and appropriate adjustments are recorded.

31

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property, Plant and Equipment

Property, plant and equipment are recorded at cost when acquired. Depreciation is calculated using the straight-line method based on the estimated
useful lives of the respective assets, which generally range from 3 to 45 years for buildings and improvements and from 3 to 12 years for machinery and equipment. Long-lived
assets are reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impairment losses are recognized if expected
future cash flows of the related assets are less than their carrying value.

Intangible Assets

Intangible assets consist of goodwill and trademarks. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets," goodwill and intangible assets with indefinite lives are no longer amortized, but instead tested for impairment. Intangible assets are reviewed for impairment annually or whenever
events or changes in business circumstances indicate the carrying value of the assets may not be recoverable.

Goodwill
is tested by estimating the fair value of each reporting unit using a discounted cash flow model with an appropriate risk adjusted discount rate. The fair value of each
reporting unit is then compared with the carrying value to determine if any impairment exists.

The
fair value of trademarks is calculated using a "relief from royalty payments" methodology. This approach involves two steps: (i) estimating reasonable royalty rates for each
trademark and (ii) applying these royalty rates to a net sales stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value
of each trademark.

Fair Value of Financial Instruments

We consider the carrying amounts of cash and cash equivalents, receivables, and accounts payable to approximate fair value because of the short maturity of these
financial instruments.

Amounts
outstanding under the revolving credit agreement are considered to be carried in the financial statements at their estimated fair values because they accrue interest at rates
which generally fluctuate with interest rate trends.

We
periodically use interest rate swap agreements (derivative financial instruments) to hedge risk associated with our floating rate long-term debt. Each derivative
instrument designated as a hedge is recorded on the balance sheet at fair value as an asset or liability with any gain or loss recorded as a component of accumulated other comprehensive income
(expense) until recognized in earnings. The fair value of the swap agreements is based upon quoted market prices. The net amount to be paid or received under the interest rate swap agreements is
recorded as a component of interest expense. As of December 31, 2007 we had no interest rate swap agreements.

Revenue Recognition

Revenues (sales) are recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) there is a fixed or
determinable price; (3) delivery has occurred; and

32

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FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(4) collectibility
is reasonably assured. These criteria are satisfied and revenue recognized primarily upon shipment of product. Appropriate provisions for customer returns and discounts are
recorded based upon historical experience.

Advertising Costs

Advertising production costs are expensed when advertisements are first aired or distributed. Total advertising costs were $70,308 for 2007, $71,958 for 2006, and
$75,309 for 2005.

Stock-Based Compensation

Effective January 1, 2006 we adopted Statement of Financial Accounting Standard No. 123 (Revised 2004)Share-Based Payment (SFAS
No. 123R) using the modified prospective application transition method. Under the modified prospective approach, the provisions of SFAS No. 123R are applied to new awards and to awards
modified, repurchased or cancelled after the effective date. Additionally, compensation cost is also recognized for the unvested portion of awards granted prior to adoption. Prior year financial
statements are not restated.

Prior
to the adoption of SFAS No. 123R, we accounted for stock based compensation plans under APB Opinion No. 25 "Accounting for Stock Issued to Employees". The following
table illustrates the impact on net earnings and earnings per common share if the fair value method had been applied.

Year Ended
December 31, 2005Net earnings

$
61,436Deduct: Stock-based employee compensation expense determined under fair value based method, net of income tax benefits


4,212Net earningspro forma

$
57,224Earnings per sharebasic:As reported

$
1.18Pro forma

$
1.10Earnings per sharediluted:As reported

$
1.18Pro forma

$
1.10


Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income tax expense (benefit) in the period that
includes the enactment date.

33

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FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassifications

Certain amounts in the consolidated financial statements have been reclassified to conform to the 2007 presentation. These reclassifications have no effect on net
earnings or stockholders' equity as previously reported. On October 16, 2007 we announced our intent to divest Hickory Business Furniture (HBF) a wholly owned subsidiary that designs and
manufactures business furniture in the mid- to upper-price range. We believe it is likely this transaction will be completed by the end of the first quarter of 2008. This business unit is
reflected as a discontinued operation, pursuant to the provisions of Statement of Financial Accounting Standard No. 144,Accounting for the Impairment or Disposal of
Long-Lived Assets.

3. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

In 2001 we began implementing a plan to reduce our domestic manufacturing capacity. As of December 31, 2007, this plan included the closing, consolidation
or reconfiguration of 38 domestic manufacturing facilities. Restructuring activity included the closing of five manufacturing facilities and 18 retail stores in 2007, the closing or the
realignment of three manufacturing facilities in 2006, and the closing of eight manufacturing facilities in 2005.

Asset
impairment charges were recorded to reduce the carrying value of all idle facilities and related machinery and equipment to their net realizable value. The determination of the
impairment charges were based primarily upon (i) consultations with real estate brokers, (ii) proceeds from recent sales of Company facilities and (iii) the market prices being
obtained for similar long-lived assets.

Restructuring
and asset impairment charges were as follows:

Year Ended December 31,2007

2006

2005Restructuring charges:Costs to shutdown, cleanup and vacate facilities

$
681

$
1,675

$
3,793One-time termination benefits


8,475


2,873


7,628Lease termination costs


7,217





Inventory write-downs





713


16,373


5,261


11,421Impairment charges


11,502


2,142


9,98827,875

$
7,403

$
21,409Statement of Operations classification:Cost of sales

$
5,784

$
5,280

$
7,427Selling, general and administrative expenses


22,091


2,123


13,982$
27,875

$
7,403

$
21,409


Real
estate held for sale with a carrying value of $1,054 and $5,007 was included in other assets as of December 31, 2007 and 2006, respectively. The accrual for lease termination
costs of $7,217 is included in other long-term liabilities at December 31, 2007.

34

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

4. INVENTORIES

Inventories are summarized as follows:

December 31,
2007

December 31,
2006Finished products

$
283,236

$
360,442Work-in-process


24,005


35,411Raw materials


94,061


106,217$
401,302

$
502,070


5. PROPERTY, PLANT AND EQUIPMENT

Major classes of property, plant and equipment consist of the following:

December 31,
2007

December 31,
2006Land

$
16,964

$
17,701Buildings and improvements


225,352


244,629Machinery and equipment


268,862


347,661511,178


609,991Less accumulated depreciation


332,614


388,593$
178,564

$
221,398


6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets include the following:

December 31,
2007

December 31,
2006GoodwillBeginning balance

$
182,652

$
182,507Income tax benefit of deductible goodwill


(676
)

(716
)Goodwill associated with discontinued operation


(14,276
)

Other


(344
)

861Ending balance

$
167,356

$
182,652Trademarks and trade namesBeginning balance

$
169,671

$
169,671Trade name impairment


(7,100
)

Ending balance

$
162,571

$
169,671


Our
other intangible assets consist of trademarks and trade names all having indefinite lives. Goodwill and other intangible assets with indefinite lives are tested annually for
impairment or whenever events or changes in business circumstances indicate the carrying value of the assets may not

35

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

6. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

be
recoverable. During 2007, we tested for impairment and the fair value of certain trade names were lower than their carrying value. Therefore, a non-cash pretax charge of $7,100 was
recorded to reduce the carrying value of those trade names to their estimated fair value. This charge is reflected in selling, general and administrative expenses in the statement of operations.No
impairment was recorded in 2006 and 2005.

7. LONG-TERM DEBT

Long-term debt consists of the following:

December 31,
2007

December 31,
2006Revolving credit facilitysecured

$
300,000

$
Revolving credit facilityunsecured





160,0006.83% Senior Notes





150,000Other


800


1,600300,800


311,600Less: current maturities


20,800


10,800Long-term debt

$
280,000

$
300,800


On
August 9, 2007, we refinanced our revolving credit facility with a group of financial institutions. The new facility is a 5-year secured revolving credit facility
with a commitment of $550,000 subject to a borrowing base of certain eligible accounts receivable and inventory. The new facility allows for the issuance of letters of credit and cash borrowings.
Letters of credit are limited to no more than $100,000, with cash borrowings limited by the facilities borrowing base amount less letters of credit outstanding. As of December 31, 2007, there
were $300,000 of cash borrowings and $28,873 million in letters of credit outstanding. In December 2007, we deposited $20,000 in a cash collateral account at the lead bank of our revolving
credit facility. This $20,000, which was classified as restricted cash as of December 31, 2007 was used to repay a portion of our long-term debt on January 14, 2008. The
portion of the long-term debt related to this payment was reclassified to current maturities as of December 31, 2007. Based upon our borrrowing base as of December 31, 2007
we could have borrowed an additional $4,500. On February 15, 2008, we repaid an additional $30,000 of our long-term debt.

Cash
borrowings under the secured revolving credit facility will be at either (i) a base rate (the greater of the prime rate and the Federal Funds Effective Rate plus
1/2%) or (ii) an adjusted Eurodollar rate plus an applicable margin, depending upon the type of loan selected. The applicable margin over the adjusted Eurodollar rate is 1.25%
for the first six months of the facility and thereafter will fluctuate with excess availability. As of December 31, 2007, loans outstanding under the secured revolving credit facility consisted
of $300,000 based on the adjusted Eurodollar rate at a weighted average interest rate of 6.3%.

The
revolving credit facility is guaranteed by all of our domestic subsidiaries and is secured primarily by all of our accounts receivable, inventory and cash. Availability under the
facility will fluctuate based upon a borrowing base calculation consisting of eligible accounts receivable and inventory. Certain covenants and restrictions, including a fixed charge coverage ratio,
will become

36

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

7. LONG-TERM DEBT (Continued)

effective
if excess availability falls below certain thresholds. We currently would not comply with the fixed charge coverage ratio; however, we do not expect to fall below the required excess
availability thresholds in 2008.

Funds
borrowed under the secured revolving credit facility were used to repay in full the existing indebtedness in the amount of $150,000 owed pursuant to the terms of the unsecured
revolving credit facility dated April 21, 2006, which terminated upon payment. We also repaid in full the $150,000 of senior notes issued under the Note Purchase Agreement dated May 17,
2006. In connection with the termination of the Note Purchase Agreement, we paid and charged to interest expense a make-whole premium of $16,985. In order to mitigate the risk associated
with the make-whole premium we entered into a financial hedging agreement to offset changes in the interest rate and recognized a gain of $2,798. This gain was recorded as a reduction of
interest expense. In addition, due to the extinguishment of these two credit facilities, deferred financing fees of $1.0 million were charged to interest expense. The impact of these items
related to the refinancing of the prior debt facilities was to increase interest expense by $15,190 for the twelve months December 31, 2007.

8. STOCK OPTIONS AND RESTRICTED STOCK AWARDS

We have outstanding option grants pursuant to the 1992 Stock Option Plan and the 1999 Long-Term Incentive Plan. These plans are administered by the
Human Resources Committee of the Board of Directors and permit certain key employees to be granted nonqualified options, performance-based options, restricted stock, or combinations thereof. Options
must be issued at market value on the date of grant and expire in a maximum of ten years. As of December 31, 2007 there were 985,391 shares available for grant. Shares issued upon exercise of
stock options or issuance of restricted shares may be from new shares or from treasury stock. The compensation cost that has been charged against income for stock incentive plans were $2,866 ($1,824
net of income tax benefit) and $5,734 ($3,647 net of income tax benefit) for the twelve months ended December 31, 2007 and 2006, respectively.

The
fair value of the award is recognized as compensation expense on a straight-line basis over the vesting period, generally four years for stock options and various terms
ranging from one to seventeen years for the restricted stock and restricted stock units.

The
fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used to determine the
fair value of options granted in the periods indicated.

2007

2006

2005Risk-free interest rate

4.9
%
4.4
%
3.8
%Expected dividend yield

4.2
%
2.5
%
2.6
%Expected life (in years)

6.0

5.6

6.0Expected volatility

36.5
%
39.8
%
42.6
%


The
risk-free interest rate is based upon U.S. Treasury Securities with a term similar to the expected life of the option grant. The dividend yield is calculated based upon
the dividend rate on the date of the grant. The expected term of the option grant is based upon historical exercise results.

37

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

8. STOCK OPTIONS AND RESTRICTED STOCK AWARDS (Continued)

Expected
volatility is calculated based upon the historical volatility over a period equal to the expected term of the option grant.

Other
information pertaining to option activity during the years ended December 31, 2007, 2006 and 2005 is as follows:

2007

2006

2005Weighted average fair value per share of options granted

$
4.25

$
8.37

$
8.19Total intrinsic value of stock options exercised

$


$
1,481

$
4,361


A
summary of option activity is presented below:

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
ValueOutstanding at December 31, 2006

3,861,300

$
24.28Granted

324,192


15.21Exercised




Forfeited or expired

(922,875
)

24.72Outstanding at December 31, 2007

3,262,617

$
23.25

4.0

$
Exercisable at December 31, 2007

2,423,825

$
24.10

3.8

$



The
aggregate intrinsic value was calculated using the difference between the market price at year end and the exercise price for only those options that have an exercise price that is
less than the market price.

Non-vested
restricted stock and restricted stock unit activity is presented below.

Shares

Weighted
Average
Grant-Date
Fair ValueOutstanding at December 31, 2006

84,081

$
25.24Granted

205,419


14.88Vested

(14,332
)

31.27Forfeited

(77,301
)

18.65Outstanding at December 31, 2007

197,867

$
16.63


As
of December 31, 2007 there was $6,581 of total unrecognized compensation cost related to non-vested share-based compensation arrangements under the plan. This cost
is expected to be recognized over a weighted-average period of 1.9 years.

38

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

9. COMMON STOCK

The Company's restated certificate of incorporation includes authorization to issue up to 200 million shares of Common Stock with a $1.00 per share stated
value. As of December 31, 2007, 56,482,541 shares of Common Stock had been issued.

The
Company has periodically been authorized by its Board of Directors to repurchase our Common Stock in open market or privately negotiated transactions. Common Stock repurchases are
recorded as treasury stock and may be used for general corporate purposes. On January 26, 2006 an authorization of $50,000 was approved. This authorization expired on January 26, 2007
with no shares having been purchased.

Weighted
average shares used in the computation of basic and diluted earnings per common share for 2007, 2006, and 2005 are as follows:

Year Ended December 31,2007

2006

2005Weighted average shares used for basic earnings per common share

48,445,948

48,753,006

51,976,417Effect of dilutive securities:Stock options





127,558Weighted average shares used for diluted earnings per common share

48,445,948

48,753,006

52,103,975


Excluded
from the computation of diluted earnings per common share for 2007, 2006 and 2005 were options to purchase 3,262,617, 3,309,850 and 3,008,825 shares, respectively, at an average
price of $23.25, $25.47 and $25.30 per share, respectively. These options have been excluded from the diluted earnings per share calculation because their inclusion would be antidilutive.

Approximately
2 million preferred shares are reserved for issuance under a Preferred Stock Purchase Rights Plan. Under certain conditions involving the acquisition of or an offer
for 15 percent or more of the Company's common stock, all holders of Rights except an acquiring entity, would be entitled (i) to purchase, at an exercise price of $135, common stock of
the Company, or an acquiring entity with a value twice the exercise price, or (ii) at the option of the Board, to exchange each Right for one share of common stock. The Rights remain in
existence until July 30, 2008, unless earlier redeemed (at one cent per Right exercised, or exchanged under the terms of the Plan.

10. INCOME TAXES

Year Ended December 31,2007

2006

2005Income (loss) from continuing operations before income tax expense:United States operations

$
(80,074
)
$
67,185

$
72,897Foreign operations


(404
)

5,514


13,907$
(80,478
)
$
72,699

$
86,804


39

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

10. INCOME TAXES (Continued)

Income tax expense (benefit) from continuing operations is comprised of the following:

Year Ended December 31,2007

2006

2005Current:Federal

$
(11,742
)
$
34,242

$
37,859State and local


1,487


2,170


2,252Foreign


1,074


1,345


659(9,181
)

37,757


40,770Deferred


(20,080
)

(14,973
)

(11,989
)Income tax expense (benefit):

$
(29,261
)
$
22,784

$
28,781


The
following table reconciles the differences between the federal corporate statutory rate and our effective income tax rate for continuing operations.

Year Ended December 31,2007

2006

2005Federal corporate statutory rate

(35.0
)%
35.0
%
35.0
%State and local income taxes, net of federal tax benefit

(3.7
)
1.6

1.2Foreign rate differential

0.8

(1.9
)
Non-taxable income

0.1

(1.2
)
(1.5
)Other

1.4

(2.2
)
(1.5
)Effective income tax rate

(36.4
)%
31.3
%
33.2
%


40

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

10. INCOME TAXES (Continued)

The
sources of the tax effects for temporary differences that give rise to the deferred tax assets and liabilities were as follows:

December 31,
2007

December 31,
2006Deferred tax assets attributable to:Expense accruals

$
63,667

$
46,799Employee pension and other benefit plans


19,976


22,728Asset impairment charges


1,879


2,569Net operating loss carryforward


9,313


5,638Depreciation


680


Other


2,678


909Total deferred tax assets


98,193


78,643Deferred tax liabilities attributable to:Fair value adjustments


(45,555
)

(45,764
)Other intangible assets


(34,972
)

(34,534
)Depreciation





(3,584
)Inventory costs capitalized


(2,888
)

(2,393
)Qualifying prepaid expenses


(1,805
)

(1,322
)Total deferred tax liabilities


(85,220
)

(87,597
)Valuation allowanceNOL carryforward


(4,854
)

(4,083
)Net deferred tax assets (liabilities)

$
8,119

$
(13,037
)


The
undistributed cumulative earnings of foreign subsidiaries of $22.5 million are considered permanently reinvested outside the United States. It is impractible to determine the
amount of federal income taxes payable if these earnings were repatriated.

We
have incurred certain state net operating losses which we are carrying forward. The value of theses losses is $9,313 before any valuation allowance. We have placed a valuation
allowance of $4,854 on some of these losses based on an assessment of anticipated taxable income. Generally these losses will start to expire in the year 2021. Based upon this analysis, we believe
that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the remaining deferred tax assets.

The
Company or one of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. With few exceptions, we are no
longer subject to United States federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003. The Internal Revenue Service commenced an
examination of our United States income tax return for 2005 in the first quarter of 2007 that is anticipated to be completed by the end of 2008.

Effective
January 1, 2007 we adopted the provisions of FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes" resulting in a decrease of
$1,581 in the liability for unrecognized tax benefits and an increase to the January 1, 2007 retained earnings balance.

41

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

10. INCOME TAXES (Continued)

A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Beginning balanceJanuary 1, 2007

$
12,697Tax positions related to prior yearsAdditions


964Reductions


Tax positions related to current yearAdditions


396Reductions


Settlements


(2,761
)Lapses in statute of limitations


(1,737
)Ending balanceDecember 31, 2007

$
9,559


We
recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of January 1, 2007 and December 31, 2007 the liability for
unrecognized tax benefits included accrued interest of $3,491 and $2,670, respectively and accrued penalties of $251 and $619, respectively. We recognized interest benefits of $311 and penalty expense
of $369 related to unrecognized tax benefits in the statement of operations for the year ended December 31, 2007. The total amount of unrecognized tax benefits at December 31, 2007 that,
if recognized, would affect the effective tax rate is $9,210 ($7,000 net of income tax expense), with the balance reducing goodwill.

11. EMPLOYEE BENEFITS

We sponsor or contribute to retirement plans covering substantially all employees. The total costs of these plans were as follows:

Year Ended December 31,2007

2006

2005Defined benefit plan

$
8,065

$
11,409

$
19,867Defined contribution plan (401k plan)


10,348


11,662


793Other


1,019


453


898$
19,432

$
23,524

$
21,558


Company-Sponsored Defined Benefit Plans

Through
2005, employees were covered primarily by noncontributory plans, funded by Company contributions to trust funds, which are held for the sole benefit of employees. In 2007 we made
a cash contribution of $12,000 to the trust fund. No contributions were made to the trust fund in 2005 or

42

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

11. EMPLOYEE BENEFITS (Continued)

2006.
Future contributions will be made in accordance with ERISA requirements. At December 31, 2007 expected benefit payments to retirees and/or beneficiaries are as follows.

Year

Amount2007

$
23,8782008


24,7012009


25,5462010


26,5122011


27,7842001-2016

$
154,414


As
of December 31, 2005 we amended the defined benefit plans, freezing and ceasing future benefit accruals as of that date. Certain transition benefits are being provided to
participants who had attained age 50 and had completed 10 years of service as of December 31, 2005. We currently provide retirement benefits to our employees through a defined
contribution plan.

The
investment objective of the trust funds is to ensure, over the long-term life of the trusts, an adequate asset balance to support the benefit obligations to participants,
retirees and beneficiaries. In meeting this objective, we seek to achieve investment returns at or above selected benchmarks consistent with a prudent level of diversification. We retain registered
investment advisors to manage specific asset classes. Investment advisors are selected from established and financially sound organizations with proven records in managing funds in the appropriate
asset class. Investment advisors are given strict investment guidelines and performance benchmarks. The assets of the various plans include corporate equities, government securities, corporate debt
securities and investment grade mortgage contracts.

Annual
cost for defined benefit plans is determined using the projected unit credit actuarial method. Prior service cost is amortized on a straight-line basis over the
average remaining service period of employees expected to receive benefits.

It
is our practice to fund pension costs to the extent such costs are tax deductible and in accordance with ERISA. The assets of the various plans include corporate equities, government

43

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

11. EMPLOYEE BENEFITS (Continued)

securities,
corporate debt securities and insurance contracts. The table below summarizes the funded status of our sponsored defined benefit plans.

|                                        |                              | December 31, 2007 |         | December 31, 2006 |        
|--------------------------------------- | ---------------------------- | ----------------- | ------- | ----------------- | -------
|
|Change in projected benefit obligation: |                              |                   |         |                   |        
|                                        | Beginning of year            |                   | $       | 402,202           |        
|                                        | Service cost                 |                   |         | 4,158             |        
|                                        | Interest cost                |                   |         | 23,721            |        
|                                        | Actuarial (gain) loss        |                   |         | (5,379            | )      
|                                        | Benefits paid                |                   |         | (20,708           | )      
|                                        |                              |                   |         |                   |        
|                                        |                              | End of year       |         | $                 | 403,994
|                                        |                              |                   |         |                   |        
|Change in fair value of plan assets:    |                              |                   |         |                   |        
|                                        | Beginning of year            |                   | $       | 368,629           |        
|                                        | Actual return on plan assets |                   |         | 20,822            |        
|                                        | Employer contributions       |                   |         | 12,000            |        
|                                        | Benefits paid                |                   |         | (20,708           | )      
|                                        |                              |                   |         |                   |        
|                                        |                              | End of year       |         | $                 | 380,743
|                                        |                              |                   |         |                   |        
|                                        |                              |                   |         |                   |        
|Accrued pension cost                    |                              | $                 | (23,251 | )                 | $      
|                                        |                              |                   |         |                   |        
|Accumulated benefit obligation          |                              | $                 | 398,895 |                   | $      
|                                        |                              |                   |         |                   |        

The
asset allocations for our defined benefit plans are as follows:

Percentage of Plan AssetsTarget

December 31,
2007

December 31,
2006Equity securities

55
%
55
%
56
%Debt securities

45
%
45
%
44
%100
%
100
%
100
%


44

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

11. EMPLOYEE BENEFITS (Continued)

Net
periodic pension expense for 2007, 2006, and 2005 included the following components:

Year Ended December 31,2007

2006

2005Service cost-benefits earned during the period

$
4,498

$
5,281

$
12,969Interest cost on the projected benefit obligation


25,228


24,600


25,057Expected return on plan assets


(26,265
)

(25,499
)

(26,007
)Net amortization and deferral


4,604


7,027


6,503Curtailment charge








1,345Net periodic pension expense

$
8,065

$
11,409

$
19,867


The
estimated amount that will be amortized from accumulated other comprehensive income into net periodic benefits cost in 2008 is $3,687.

Actuarial
assumptions used to determine costs and benefit obligations are as follows:

2007

2006

2005Assumptions used to determine net pension expense:Expected long-term rate of return on plan assets

7.50
%
7.50
%
7.50
%Average discount rate

6.00
%
5.75
%
6.00
%Long-term rate of compensation increase

3.50
%
3.50
%
3.50
%Assumptions used to determine benefit obligation as of December 31:Average discount rates

6.25
%
6.00
%
5.75
%Long-term rate of compensation increase

3.50
%
3.50
%
3.50
%


The
expected long-term rate of return assumption was developed through analysis of historical market returns by asset class, current market conditions and the
trust funds past experience.

The
adoption of SFAS No. 158 resulted in the following adjustments to individual line items on our statement of financial position as of December 31, 2006:

Before
Application of
SFAS No. 158

Adjustments

After
Application of
SFAS No. 158Other long-term liabilities (accrued pension expense)

105,414

8,081

113,495Deferred income taxes

47,668

(3,031
)
44,637Accumulated other comprehensive income

(28,138
)
(5,050
)
(33,188
)


Defined Contribution Plan

We
sponsor a defined contribution plan which covers all domestic employees. Participating employees may contribute a percentage of their compensation to the plan, subject to limitations
imposed by the Internal Revenue Service. We match a portion of the employee's contribution and

45

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

11. EMPLOYEE BENEFITS (Continued)

employees
vest immediately in the company match. Effectively January 1, 2006 the company matching formula was increased when the defined benefit plan was frozen as previously discussed.

12. OTHER LONG-TERM LIABILITIES

Other long-term liabilities consist of the following:

December 31,
2007

December 31,
2006Pension liability

$
50,899

$
61,935Other


71,014


51,560$
121,913

$
113,495


We
made a contribution of $12,000 to the pension plan in the third quarter of 2007 and expect to make future contributions as required by funding regulations.

Other
long-term liabilities includes the non-current portion of accrued workers compensation, accrued rent associated with leases with escalating payments,
liabilities for unrecognized tax benefits, deferred compensation and long-term incentive plans and various other non-current liabilities.

13. OTHER COMPREHENSIVE INCOME (EXPENSE)

Other comprehensive income (expense) consists of the following:

Year Ended December 31,2007

2006

2005Pension liability

$
4,456

$
27,787

$
(19,348
)Foreign currency translation


3,439


1,171


555Change in fair value of financial instruments accounted for as hedges





(8,714
)

2,5477,895


20,244


(16,246
)Income tax expense (benefit)


1,672


7,000


(5,940
)$
6,223

$
13,244

$
(10,306
)


The
components of accumulated other comprehensive income (expense), each presented net of tax, are as follows:

December 31,
2007

December 31,
2006Pension liability

$
(31,138
)

(33,922
)Foreign currency translation


4,173


734$
(26,965
)
$
(33,188
)


46

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

14. LEASES

Certain of our real properties and equipment are operated under lease agreements. Rental expense under operating leases was as follows:

Year Ended December 31,2007

2006

2005Rent expense

$
71,046

$
57,396

$
51,660Sublease income


(13,707
)

(16,912
)

(11,882
)Net rent expense

$
57,339

$
40,484

$
39,778


Included
in rent expense for 2007 was the lease termination charge of $7,217 associated with the closing of 18 company-owned retail stores.

Annual
minimum payments under operating leases are as follows:

Year

Minimum
Lease
Payments

Sublease
Income

Net Minimum
Lease
Payments2008

$
54,696

$
13,491

$
41,2052009


51,196


13,323


37,8732010


46,610


13,897


32,7132011


41,669


14,156


27,5132012


38,074


13,508


24,566thereafter


84,696


31,799


52,897$
316,941

$
100,174

$
216,767


We
have provided guarantees related to store leases for certain independent dealers opening Company-brand stores (e.g., Thomasville Home Furnishings Stores). The
guarantees range from rolling 5-year guarantees to full-term guarantees (usually 10 years) and generally require us to make lease payments in the event of default by the
dealer. In the event of default, we have the right to assign or assume the lease. The total future lease payments guaranteed at December 31, 2007 were $65,155. We consider the estimated loss on
these guarantees to be insignificant; therefore, as of December 31, 2007 we have not recorded any contingent liability for lease guarantees.

15. CONTINGENT LIABILITIES

We are or may become a defendant in a number of pending or threatened legal proceedings and are or may become a potentially responsible party in certain
environmental matters in the ordinary course of business. In our opinion, our ultimate liability, if any, from all such proceedings is not reasonably likely to have a material adverse effect on our
consolidated financial position or results of operations other than potential environmental exposures with respect to which monitoring or cleanup requirements may change over time.

We
offer limited warranties on certain products. In addition, we accept returns of defective product. Our accounting policy is to accrue an estimated liability for these returns at the
time revenue is recognized. This estimate is based upon historical returns and adjusted for any warranty or return

47

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

15. CONTINGENT LIABILITIES (Continued)

issues
at period end. The warranty reserve is included partially as a valuation allowance against accounts receivable and partially as an accrued expense. The following table summarizes reserve for
returns activity:

2007

2006

2005Beginning balance

$
10,334

$
9,351

$
7,651Additions charged to cost and expenses


26,797


28,474


25,130Deductions from reserves


26,107


27,491


23,430Ending balance

$
11,024

$
10,334

$
9,351


16. OTHER INCOME, NET

Other income, net consists of the following:

2007

2006

2005Interest income

$
3,686

$
2,594

$
2,562Gain on termination of hedge accounting


4,094


8,916


Other, net


2,469


3,315


1,961$
10,249

$
14,825

$
4,523


17. DISCONTINUED OPERATIONS

On October 16, 2007, we announced our intent to divest Hickory Business Furniture (HBF) a wholly owned subsidiary that designs and manufactures business
furniture in the mid- to upper-price range. We believe it is likely this transaction will be completed by the end of the first quarter of 2008. This business unit is reflected as a
discontinued operation pursuant to the provisions of Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived
Assets.

Assets
and liabilities of discontinued operations are as follows:

December 31,
2007Accounts receivable

$
4,824Inventories


7,191Prepaid expenses and other current assets


221Total current assets


12,236Property, plant and equipment, net


2,944Goodwill


14,276Other assets


743Total assets of discontinued operations

$
30,199Accounts payable

$
3,662Accrued expenses


1,645Other non-current liabilities


141Total liabilities of discontinued operations

$
5,448


48

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

17. DISCONTINUED OPERATIONS (Continued)

Operating results for the discontinued operations are as follows:

2007

2006

2005Net sales

$
63,606

$
56,495

$
44,248Earnings before income tax expense


9,086


8,223


5,190Net earnings

$
5,568

$
5,140

$
3,413


18. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"),Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in U. S. GAAP, and expands the disclosure requirements regarding fair value
measurements. The rule does not introduce new requirements mandating the use of fair value. SFAS 157 defines fair value as "the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date." The definition is based on an exit price rather than an entry price, regardless of whether the entity plans
to hold or sell the asset. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The
effective date for SFAS 157 has been delayed until fiscal years beginning after November 15, 2008 for non-financial assets and liabilities except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis. We are currently assessing the impact, if any, of SFAS 157 on our consolidated financial statements.

In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007) ("SFAS 141R"),Business
Combinations. SFAS 141R requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. Earlier adoption is prohibited. We are currently assessing the impact of SFAS 141R on our consolidated financial statements; however, the impact
will be limited to business combinations occurring on or after January 1, 2009.

In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 ("SFAS 159"),The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115. SFAS 159 permits entities to choose, at specified election dates, to measure
many financial instruments and certain other items at fair value that are not currently measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected
would be reported in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements in order to facilitate comparisons between entities choosing
different measurement attributes for similar types of assets and liabilities. SFAS 159 does not affect existing accounting requirements for certain assets and liabilities to be carried at fair
value. SFAS 159 is effective as of the beginning of a reporting entity's first fiscal year that begins after November 15, 2007. We are currently assessing the impact, if any, of
SFAS 159 on our consolidated financial statements.

49

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

18. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (Continued)

In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (SFAS 160"),Noncontrolling Interests in Consolidated
Financial StatementsAn Amendment of ARB No. 51. SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.
Earlier adoption is prohibited. We are currently assessing the impact, if any, of SFAS 160 on our consolidated financial statements.

In
September 2006, the Emerging Issues Task Force issued EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements. This consensus concludes that for a split-dollar life insurance arrangement within the scope of this Issue, an employer should recognize a liability for future benefits in
accordance with FASB Statement No. 106 (if, in substance, a postretirement benefit plan exists) or APB 12 (if, the arrangement is, in substance an individual deferred compensation
contract) based upon the substantive agreement with the employee. The consensus is effective for fiscal years beginning after December 15, 2007. The effects of applying this consensus should be
recognized through either (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other components of equity or net assets in the statement of
financial position as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all prior periods. We anticipate the adoption of this
consensus in 2008 will result in a cumulative-effect adjustment of $800 before income tax benefits.

50

---



FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands except per share data)

19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Following is a summary of unaudited quarterly information:

Fourth
Quarter

Third
Quarter

Second
Quarter

First
QuarterYear ended December 31, 2007:Net sales

$
504,786

$
500,840

$
519,471

$
556,959Gross profit


85,302


103,048


109,870


117,875Net earnings:Continuing operations

$
(41,809
)
$
(15,132
)
$
4,421

$
1,303Discontinued operations


1,131


1,476


1,387


1,574Total

$
(40,678
)
$
(13,656
)
$
5,808

$
2,877Earnings per common shareDiluted:Continuing operations

$
(0.86
)
$
(0.31
)
$
0.09

$
0.03Discontinued operations


0.02


0.03


0.03


0.03Total

$
(0.84
)
$
(0.28
)
$
0.12

$
0.06Dividends declared per common share

$
0.16

$
0.16

$
0.16

$
0.16Common stock price range:High

$
14.96

$
14.33

$
16.56

$
17.94Low

$
9.60

$
9.26

$
13.49

$
15.04Year ended December 31, 2006:Net sales

$
572,844

$
555,212

$
587,059

$
646,565Gross profit


112,130


117,432


130,304


148,009Net earningsContinuing operations

$
1,027

$
4,586

$
15,578

$
28,724Discontinued operations


1,031


1,211


1,400


1,498Total

$
2,058

$
5,797

$
16,978

$
30,222Earnings per common shareDiluted:Continuing operations

$
0.02

$
0.09

$
0.32

$
0.58Discontinued operations


0.02


0.03


0.03


0.03Total

$
0.04

$
0.12

$
0.35

$
0.61Dividends declared per common share

$
0.16

$
0.16

$
0.16

$
0.16Common stock price range:High

$
20.96

$
22.21

$
25.00

$
25.34Low

$
15.90

$
18.10

$
18.79

$
21.20


Earnings
per common share were computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of computing
average quarterly shares outstanding for each period.

The
closing market price of the Common Stock on December 31, 2007 was $10.06 per share.

51

---





Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A.    Controls and Procedures

Disclosure controls and procedures

The Company's management, with the participation of the Company's Chief Executive Officer and the Company's Controller and Chief Accounting Officer, in his
capacity as principal financial officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of December 31, 2007. The term "disclosure controls and procedures"
as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company's
disclosure controls and procedures as of December 31, 2007, the
Company's Chief Executive Officer and its Controller and Chief Accounting Officer, in his capacity as principal financial officer, concluded that, as of such date, the Company's disclosure controls
and procedures were effective at the reasonable assurance level.

No
change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three
months ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

Management of Furniture Brands International, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2007 as required by the
Securities Exchange Act of 1934 Rule 13a-15(c). In making this assessment, we used the criteria set forth in the framework inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal ControlIntegrated
Frameworkour management concluded that our internal control over financial reporting was effective as of
December 31, 2007.

Furniture
Brands International, Inc.

St. Louis,
Missouri
February 29, 2008

52

---



Report of the Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
Furniture Brands International, Inc.:

We
have audited Furniture Brands International, Inc.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furniture
Brands International, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Furniture Brands International, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,
based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Furniture Brands
International, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss), and cash flows for each
of the years in the three-year period ended December 31, 2007, and our report dated February 29, 2008 expressed an unqualified opinion on those consolidated financial
statements.

/s/
KPMG LLP

St. Louis,
Missouri
February 29, 2008

Item 9B.    Other Information

None

53

---





PART III

Item 10.    Directors, Executive Officers and Corporate Governance

The sections entitled "Nominees" and "Section 16(a) Beneficial Ownership Reporting Compliance" of our Definitive Proxy Statement for the Annual Meeting of
Stockholders on May 1, 2008 are incorporated herein by reference.

Executive Officers of the Registrant

|Name                 |  | Age |  | Position                                                                                                                                                                                 |  | Current
Positions |  | Appointed
or Elected         
|-------------------- |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------------------
|*Wilbert G. Holliman |  | 70  |  | President of the Subsidiary
Action Industries, Inc.
Chief Executive Officer of the Subsidiary
Action Industries, Inc.
Director
President
Chief Executive Officer
Chairman of the Board |  | X
X               |  | 1989
1994
1996
1996
1996
1998
|Ralph P. Scozzafava  |  | 48  |  | Vice-Chairman of the Board
Chief Executive Office Designate
Director
Chief Executive Officer                                                                                             |  | X
X
X             |  | 2007
2007
2007
2008          
|Jon D. Botsford      |  | 53  |  | Senior Vice President
General Counsel
Secretary                                                                                                                                          |  | X
X
X             |  | 2008
2008
2008               
|Mary E. Sweetman     |  | 44  |  | Vice President, Human Resources
Senior Vice President, Human Resources                                                                                                                   |  | X                 |  | 2006
2007                    
|Richard R. Isaak     |  | 40  |  | Controller
Principle Financial Officer
Principle Accounting Officer                                                                                                                      |  | X
X
X             |  | 2007
2007
2007               
|Jeffrey L. Cook      |  | 52  |  | President, Broyhill                                                                                                                                                                      |  | X                 |  | 2007                         
|William G.Holliman   |  | 43  |  | Vice President, MarketingLane
Executive Vice President, Sales and
MarketingLane
Executive Vice President, Purchasing/Wood
OperationsLane
President, Lane                              |  | X                 |  | 1997
2004
2005
2007          
|Edward Teplitz       |  | 46  |  | President, Thomasville                                                                                                                                                                   |  | X                 |  | 2007                         
|Dan Bradley          |  | 51  |  | President, Designer Group                                                                                                                                                                |  | X                 |  | 2007                         

---

William
G. Holliman is the son of Wilbert G. Holliman.

The
executive officers are elected at the organizational meeting of the Board of Directors which follows the annual meeting of stockholders and serve for one year or until their
successors are elected and qualified.

54

---



Each
of the executive officers has held the same position or other positions with the same employer during the past five years, except for the following:

|Executive           |  | Company                                   |  | Position                                                                                                                                                                                          
|------------------- |  | ----------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ralph P. Scozzafava |  | Wm. Wrigley Jr. Company                   |  | Vice PresidentWorldwide Commerical Operations
Vice President and Managing DirectorNorth America/Pacific
Vice President and General Manager, U.S
Vice presidentSales and Customer Marketing, U.S
|Jon D. Botsford     |  | Steelcase, Inc.                           |  | Senior Vice President and Chief Legal Officer                                                                                                                                                     
|Mary E. Sweetman    |  | Monsanto Company                          |  | Vice President, International
Vice President, Human Resources, North America & Latin America;
Vice President, Human Resources, North America                                                      
|Jeffrey L. Cook     |  | Magnussen Home Furnishings Inc.           |  | President and Chief Executive Officer                                                                                                                                                             
|Edward Teplitz      |  | Ethan Allen, Inc.                         |  | Executive Vice President
Vice President, Finance and Chief Financial Officer                                                                                                                      
|Dan Bradley         |  | Ferguson Copeland LTD
Baker Knapp & Tubbs |  | President, Chief Executive Officer
President                                                                                                                                                      

Code of Corporate Conduct

We
have adopted a code of business conduct for directors, officers (including the Company's principal executive officer, principal financial officer, principal accounting officer and
controller) and employees, known as the Code of Corporate Conduct. Any person may request a free copy of the Code of Corporate Conduct from:



The
Code of Corporate Conduct is available on our website:furniturebrands.com(Investor Information, Corporate Governance). We intend to
satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting any amendment or waiver to our Code of Corporate Conduct, within four business days, on our website
for at least a 12 month period. Our website does not constitute part of this Annual Report on Form 10-K.

55

---



Audit Committee and Audit Committee Financial Expert

The
sections entitled "Board of Directors and Committees" and "Audit Committee Disclosure" of our Proxy Statement for the Annual Meeting of Stockholders on May 1, 2008 are
incorporated herein by reference.

Item 11.    Executive Compensation

The sections entitled "Executive Compensation" and "Compensation of Board of Directors" of our Definitive Proxy Statement for the Annual Meeting of Stockholders
on May 1, 2008 are incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

The section entitled "Security Ownership" of our Definitive Proxy Statement for the Annual Meeting of Stockholders on May 1, 2008 is incorporated herein by
reference.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

The sections entitled "Board of Directors and Committees" and "Certain Relationships and Related Transactions" of our Definitive Proxy Statement for the Annual
Meeting of Stockholders on May 1, 2008 are incorporated herein by reference.

Item 14.    Principal Accountant Fees and Services

The section "Audit Committee Disclosure" of our Definitive Proxy Statement for the Annual Meeting of Stockholders on May 1, 2008 is incorporated herein by
reference.

56

---





PART IV

Item 15.    Exhibits and Financial Statement Schedules

3(a)

Restated Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3(a) to Furniture Brands International, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002)3(b)

By-Laws of the Company revised and amended to May 6, 1998. (Incorporated by reference to Exhibit 3(a) to Furniture Brands International, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998)3(c)

Rights Agreement, dated as of July 30, 1998, between the Company and Bank of New York, as Rights Agent. (Incorporated by reference to Exhibit 4(b) to Furniture Brands International, Inc.'s Report on Form 10-Q for the quarter ended
June 30, 1998)3(d)

Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Company. (Incorporated by reference to Exhibit 4(c) to Furniture Brands International, Inc.'s Report on Form 10-Q for the
quarter ended June 30, 1998)


57

---



4(a)

Note Purchase Agreement dated May 17, 2006, for $150,000,000 6.83% Senior Notes due May 17, 2018 among Furniture Brands International, Inc., Broyhill Furniture Industries, Inc., HDM Furniture Industries, Inc., Lane Furniture
Industries, Inc., and Thomasville Furniture Industries, Inc., and various institutional investors, and J.P. Morgan Securities Inc., Mitsubishi Securities (USA), Inc., Wachovia Capital Markets, LLC and Wells Fargo Capital
Markets as agents. (Incorporated by reference to Exhibit 10 to Furniture Brands International, Inc.'s Current Report on Form 8-K, May 23, 2006)4(b)

First Amendment dated April 16, 2007 to Note Purchase Agreement dated May 17, 2006, by and among Furniture Brands International, Inc., Broyhill Furniture Industries, Inc., HDM Furniture Industries, Inc., Lane Furniture
Industries, Inc., and Thomasville Furniture Industries, Inc., and various institutional investors. (Incorporated by reference to Exhibit 10(a) to the Company's Current Report on Form 8-K, dated April 16, 2007 and filed on
April 19, 2007)4(c)

Second Amendment dated June 29, 2007 to Note Purchase Agreement dated May 17, 2006, by and among Furniture Brands International, Inc., Broyhill Furniture Industries, Inc., HDM Furniture Industries, Inc., Lane Furniture
Industries, Inc., and Thomasville Furniture Industries, Inc., and various institutional investors. (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated on June 29, 2007 and filed on
July 3, 2007)10(a)

Furniture Brands International, Inc. 1992 Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10(a) to Furniture Brands International, Inc.'s Form 10-Q for the quarter ended March 31, 2000)*10(b)

Furniture Brands International, Inc. 1999 Long-Term Incentive Plan, as amended. (Incorporated by reference to Exhibit 4(f) to Furniture Brands International, Inc.'s Registration Statement on Form S-8, File No. 333-100133)
*10(c)

Furniture Brands Internal, Inc. 2005 Long-Term Performance Bonus Plan (Incorporated by reference to Exhibit 10(a) to Furniture Brands International, Inc.'s Current Report on Form 8-K, dated May 3, 2005)10(d)

Form of Stock Option Grant Letter (Incorporated by reference to Exhibit 10(b) to Furniture Brands International, Inc.'s Current Report on Form 8-K, dated February 2, 2005)*10(e)

Form of Restricted Stock Grant Letter (Incorporated by reference to Exhibit 10(c) to Furniture Brands International, Inc's. Current Report on Form 8-K, dated February 11, 2005)*10(f)

Form of Indemnification Agreement between the Company and the Company's directors. (Incorporated by reference to Exhibit 10(c) to Furniture Brands International Inc.'s Annual Report on Form 10-K for the year ended December 31,
2001)*10(g)

Furniture Brands International, Inc. Amended and Restated Restricted Stock Plan for Outside Directors, dated as of January 27, 2005. (Incorporated by reference to Exhibit 10(b) to Furniture Brands International, Inc.'s current
Report on Form 8-K, dated May 3, 2005)*10(h)

Retirement Plan for Directors. (Incorporated by reference to Exhibit 10(g) to Furniture Brands International, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994)*


58

---



10(i)

First Amendment to Retirement Plan for Directors. (Incorporated by reference to Exhibit 10(e) to Furniture Brands International, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994)*10(j)

Furniture Brands International, Inc. Executive Incentive Plan, as amended on October 25, 2001. (Incorporated by reference to Exhibit 10(g) to Furniture Brands International Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2001)*10(k)

Thomasville Furniture Industries, Inc. Executive Incentive Plan, as amended on January 24, 2002. (Incorporated by reference to Exhibit 10(i) to Furniture Brands International Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2001)*10(l)

Drexel Heritage Furniture Industries, Inc. Executive Incentive Plan, dated January 24, 2002. (Incorporated by reference to Exhibit 10(k) to Furniture Brands International Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2001)*10(m)

Form of Executive Incentive Plan Grant Letter to Company Executives (Incorporated by reference to Exhibit 10(a) to Furniture Brands International, Inc.'s Current Report on Form 8-K, dated February 2, 2005)*10(n)

Form of Executive Incentive Plan Grant Letter to Operating Company Executives. (Incorporated by reference to Exhibit 10(q) to Furniture Brands International, Inc.'s Annual Report on Form 10-K for the year ended December 31,
2004)*10(o)

Employment Agreement, dated as of January 1, 2000, between the Company and Wilbert G. Holliman. (Incorporated by reference to Exhibit 10(j) to Furniture Brands International, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998)*10(p)

Employment Agreement, dated as of February 10, 2004, between the Company and John T. Foy. (Incorporated by reference to Exhibit 10(o), to Furniture Brands International, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2003)*10(q)

Employment Agreement, dated as of February 7, 2005, between the Company and Denise L. Ramos (Incorporated by reference to Exhibit 10(a) to Furniture Brands International, Inc.'s Current Report On Form 8-K, dated February 11,
2005)*10(r)

Employment Agreement, dated as of August 1, 1996, between the Company and Lynn Chipperfield. (Incorporated by reference to Exhibit 10(c) to Furniture Brands International, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996)*10(s)

Employment agreement dated as of September 6, 2005, between Thomasville Furniture Industries, Inc. and Nancy W. Webster (Incorporated by reference to Exhibit 10(s) to Furniture Brands International, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2006)*10(t)

Employment Agreement dated June 14, 2007 between Ralph Scozzafava and the Company (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated on June 14, 2007 and filed on June 18,
2007)*


59

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10(u)

Form of Change of Control Agreement (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated on June 19, 2007 and filed on June 26, 2007)*10(v)

Executive Severance Plan of the Company (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated on June 19, 2007 and filed on June 27, 2007)*10(w)

Form of Agreement Not To Compete between the Company and Wilbert G. Holliman, John T. Foy, and Lynn Chipperfield (Incorporated by reference to Exhibit 10(r) to Furniture Brands International, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998)*10(x)

Furniture Brands Supplemental Executive Retirement Plan, dated as of January 1, 2002. (Incorporated by reference to Exhibit 10(v) to Furniture Brands International, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2002)*10(y)

Form of Deferred Executive Compensation Agreement (Incorporated by reference to Exhibit 10(a) to Furniture Brands International, Inc.'s Current Report on Form 8-K, dated December 9, 2004)*10(z)

Form of Cash Option Deferred Executive Compensation Agreement (Incorporated by reference to Exhibit 10(b) to Furniture Brands International, Inc.'s Current Report on Form 8-K, dated December 9, 2004)*10(aa)

Furniture Brands International, Inc. Deferred Compensation Plan, effective January 1, 2006 (Incorporated by reference to Furniture Brands International, Inc.'s Registration Statement on Form S-8, File No. 333-130322)10(bb)

Form of Long-Term Performance Cash Bonus Letter (Incorporated by reference to Exhibit 10(c) to Furniture Brands International, Inc.'s Current Report on Form 8-K, dated February 2, 2005)*10(cc)

Credit Agreement dated June 21, 2007, among the Company, Broyhill Furniture Industries, Inc., HDM Furniture Industries, Inc., and Thomasville Furniture Industries, Inc. as Borrowers, Various Lenders, The Bank of Tokyo-Mitsubishi,
UFJ, LTD., PNC Bank, National Association, Wachovia Bank, National Association and Wells Fargo Bank, NA, as Co-Syndication Agents, JP Morgan Chase Bank, N.A. as Administrative Agent, and J.P. Morgan Securities, Inc., as Sole Bookrunner
and Sole Lead Arranger. (Incorporated by reference to Exhibit 10 to Furniture Brands International, Inc.'s Current Report on Form 8-K, dated April 26, 2006)10(dd)

First Amendment, dated April 16, 2007, to the Credit Agreement, dated April 21, 2006, among the Company, Broyhill Furniture Industries, Inc., HDM Furniture Industries, Inc., Lane Furniture Industries, Inc., and Thomasville
Furniture Industries, Inc., the Other Loan Parties named therein, the Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, J.P. Morgan Securities Inc., as Sole Bookrunner and Joint Lead Arranger and Banc of
America Securities LLC, as Joint Lead Arranger (Incorporated by reference to Exhibit 10(a) to the Company's Current Report on Form 8-K dated April 19, 2007 and filed on April 19, 2007)


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10(ee)

Waiver and Amendment dated June 29, 2007 to the Credit Agreement dated April 21, 2006, by and among the Company, Broyhill Furniture Industries, Inc., HDM Furniture Industries, Inc., Lane Furniture Industries, Inc., and
Thomasville Furniture Industries, Inc. and various lenders, The Bank of Tokyo-Mitsubishi UFJ, LTD., PNC Bank, National Association, Wachovia Bank, National Association, as Co-Syndication Agents and JPMorgan Chase Bank, N.A., as
Administrative Agent (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated on June 29, 2007 and filed on July 3, 2007)10(ff)

Credit Agreement, dated August 9, 2007, among the Company, Broyhill Furniture Industries, Inc., HDM Furniture Industries, Inc., Lane Furniture Industries, Inc., and Thomasville Furniture Industries, Inc, the Loan Parties named
therein, the Lenders Parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, J.P.Morgan Securities Inc., as Sole Bookrunner and Joint Lead Arranger and Banc of America Securities LLC, as Joint Lead Arranger. (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated on August 9, 2007 and filed on August 10, 2007)14

Code of Corporate Conduct21

List of Subsidiaries of the Company23

Consent of Independent Registered Public Accounting Firm31.1

Certification of Ralph P. Scozzafava, Vice Chairman of the Board and Chief Executive Officer of the Company, Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of Richard R. Isaak, Controller and Chief Accounting Officer (Principal Financial Officer) of the Company, Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1

Certification of Ralph P. Scozzafava, Vice Chairman of the Board and Chief Executive Officer of the Company, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of Richard R. Isaak, Controller and Chief Accounting Officer (Principal Financial Officer) of the Company, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.




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Schedule II

FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES    Valuation and Qualifying Accounts

|                             |                                                        | (Dollars in Thousands)                        
|---------------------------- | ------------------------------------------------------ | ----------------------------------------------
|
|Year Ended December 31, 2007 |                                                        |                                               
|                             | Allowances deducted from receivables on balance sheet: |                                               
|                             |                                                        | Allowance for doubtful accounts               
|                             |                                                        | Allowance for cash discounts/chargebacks/other
|                             |                                                        |                                               
|                             |                                                        | $                                             
|                             |                                                        |                                               
|Year Ended December 31, 2006 |                                                        |                                               
|                             | Allowances deducted from receivables on balance sheet: |                                               
|                             |                                                        | Allowance for doubtful accounts               
|                             |                                                        | Allowance for cash discounts/chargebacks/other
|                             |                                                        |                                               
|                             |                                                        | $                                             
|                             |                                                        |                                               
|Year Ended December 31, 2005 |                                                        |                                               
|                             | Allowances deducted from receivables on balance sheet: |                                               
|                             |                                                        | Allowance for doubtful accounts               
|                             |                                                        | Allowance for cash discounts/chargebacks/other
|                             |                                                        |                                               
|                             |                                                        | $                                             
|                             |                                                        |                                               

---

See
accompanying Report of Independent Registered Public Accounting Firm.

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SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

| |  | Furniture Brands International, Inc.
(Registrant)
| |  | -------------------------------------------------
| |  | By:                                              

Date:
February 29, 2008

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
indicated on the date indicated.

|Signature                                     |  | Title                                                            |  | Date             
|--------------------------------------------- |  | ---------------------------------------------------------------- |  | -----------------
|                                              |  |                                                                  |  |                  
|/s/WILBERT G. HOLLIMANWilbert G. Holliman     |  | Chairman of the Board                                            |  | February 29, 2008
|/s/RALPH P. SCOZZAFAVARalph P. Scozzafava     |  | Vice-Chairman of the Board and CEO (Principal Executive Officer) |  | February 29, 2008
|/s/KATHERINE BUTTON BELLKatherine Button Bell |  | Director                                                         |  | February 29, 2008
|/s/JOHN R. JORDAN, JR.John R. Jordan, Jr.     |  | Director                                                         |  | February 29, 2008
|/s/LEE M. LIBERMANLee M. Liberman             |  | Director                                                         |  | February 29, 2008
|/s/RICHARD B. LOYNDRichard B. Loynd           |  | Director                                                         |  | February 29, 2008
|/s/BOB L. MARTINBob L. Martin                 |  | Director                                                         |  | February 29, 2008
|/s/AUBREY B. PATTERSONAubrey B. Patterson     |  | Director                                                         |  | February 29, 2008
|/s/MATTHEW E. RUBELMatthew E. Rubel           |  | Director                                                         |  | February 29, 2008
|/s/ALBERT E. SUTERAlbert E. Suter             |  | Director                                                         |  | February 29, 2008
|/s/RICHARD R. ISAAKRichard R. Isaak           |  | Controller
(Principal Financial Officer)                         |  | February 29, 2008

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